General Electric Gains Altitude

General Electric (NYSE: GE) is America’s largest conglomerate and the country’s sixth-biggest company by market cap. It operates around the globe in businesses that range from green energy to transportation.

The company operates through seven divisions: Power & Water (which provided 19.1% of GE’s revenue in the latest quarter), Aviation (13.7%), Healthcare (13.0%), Oil & Gas (11.4%), Energy Management (4.8%), Home & Business Solutions (5.2%) and Transportation (3.4%). Its GE Capital division, which provides the company’s customers with financing for their purchases, supplied the remaining 29.4% of its revenue.

That broad diversity gives General Electric two key advantages: it helps cushion the company when it experiences a slowdown in one of its markets, and it gives it a stronger chance of tapping into profitable new trends.

General Electric Is Helping China Take to the Skies

One of these fast-growing areas is demand for passenger planes, particularly in China and other emerging markets. Through GE Aviation, General Electric is the world’s leading manufacturer of aircraft engines. This business also makes avionics, electrical and mechanical systems.

The Boeing Company (NYSE: BA) recently said that it expects China to develop into the world’s second-biggest aircraft market, after the U.S. The company sees the country’s carriers spending $480 billion on 4,330 new planes in the next 20 years to service an air travel market that it forecasts will grow at a healthy clip of 7.6% annually.

In addition to leasing and buying planes from outside manufacturers like Boeing, China is developing its own airliner, which it plans to start testing in 2014. This plane is being built by state-owned Commercial Aircraft Corporation of China (COMAC)—and General Electric is deeply involved, as Investing Daily’s John Persinos recently pointed out in “The Red Dragon Spreads Its Wings”:

“COMAC has broken ground on an aircraft assembly plant near Shanghai that’s capable of producing 20 of the large homegrown jets, code-named the C919, as well as 50 regional ARJ21 jets per year by 2016. GE is a major technology partner in this endeavor, representing a $6 billion opportunity for the company’s aviation division.”

To help meet surging aircraft engine demand, General Electric announced on December 21 that it will buy the aviation business of Italy’s Avio S.p.A. for $4.3 billion. These operations make parts and systems for military and civilian aircraft. The purchase makes sense for General Electric, because this business is already a GE Aviation supplier (GE Aviation accounted for 50% of Avio’s $2.4 billion of aviation revenue in 2011). The move will also give GE Aviation better control of its supply chain.

Emerging Markets Boosted the Latest Results From General Electric

General Electric released its fourth quarter results on Friday, and both China and GE Aviation were standouts.

The company’s Chinese revenue surged 19% in the quarter, to about $6 billion. And the Aviation business saw its revenue jump 11% from a year earlier, to $5.5 billion, while profits increased 22%, to $1.04 billion. During the quarter, Alaska Airlines ordered engines to power 50 Boeing 737s from CFM International, a joint venture between GE and Snecma, a unit of France’s Safran Group. In all, this deal is worth about $1.2 billion.

Those increases helped boost the company’s overall revenue by 3.6%, to $39.3 billion from $38.0 billion a year ago. That topped the consensus forecast of $39.0 billion.

Net earnings rose 7.5%, to $4.0 billion from $3.7 billion a year ago. Earnings per share rose 8.6%, to $0.38 from $0.35, due to fewer shares outstanding. Operating profits rose 13%, from $0.39 to $0.44. That also beat the Street’s expectation of $0.43.

Resource Development Is Another Winner for General Electric

Aside from China, General Electric notched strong revenue gains in resource-producing countries like Russia (up 23%), Australia and New Zealand (up 22%), and Latin America (up 22%). During the quarter, large equipment orders from Brazil’s Petroleo Brasileiro Petrobras SA (NYSE: PBR) and Chevron Corp. (NYSE: CVX) helped push up revenue at GE’s Oil & Gas business by 11%, to $4.5 billion; profits at the division surged 14% to $649 million.

The Oil & Gas segment attracted a total of $5.6 billion of orders in the quarter, up 18% from a year ago. That, along with a rise in orders at the aviation business, helped push up GE’s total backlog to a record $210 billion, up from $203 billion in the third quarter.

In 2009, GE cut its quarterly dividend from $0.31 a share to $0.10 to save cash during the recession. However, it resumed raising its payout in late 2010. In December 2012, the company increased the dividend for the fifth time since then when it approved a 12% hike, to $0.19 a share (for a 3.45% yield).

General Electric also bought back $2.1 billion of stock in the quarter and $5.2 billion on the year. Through both programs, the company returned $12.4 billion to its shareholders in 2012.

What do you think of this article? Please post your feedback in the “comments” section below!

Tweet

1. 

   Reply The Play maker January 26, 2013 at 11:57 AM EDT

   excellent article