General Electric Company (GE) released its third quarter 2011 earnings results, reporting earnings per share from continuing operations of 31 cents, in line with the Zacks Consensus Estimate. Earnings were up 11% compared to the prior year quarter.
This was the sixth consecutive quarter in which the company witnessed double-digit growth in earnings. Profits were primarily driven by strong infrastructure order growth and high order backlog across its segments.
Revenue
Total revenue for the quarter was flat year-over-year at $35.4 billion. However, excluding the impact of the sale of its NBC Universal business, revenues were up 12% year over year. Revenues were above the Zacks Consensus Estimate of $34.7 billion.
Total orders in the Industrial segment in the quarter increased by 16% year over year, with total backlog reaching a record level of $191 billion. Orders for equipment increased 16%.
Segment Details
The company’s Energy Infrastructure division posted revenue growth of 30% primarily driven by a 15% increase in orders to $8.6 billion. The division had an order backlog worth $14.6 billion. However, the operating profit of the segment declined 9% year over year, primarily due to continued pricing pressure in Wind Turbines.
The Aviation segment posted revenues of $4.8 billion reflecting a growth of 10% year over year. The segment reported an operating profit growth of 9%, primarily driven by a 11% growth in spare parts, partially offset by a few supplier contract terminations. The aviation segment had orders worth $5.7 billion during the quarter with a backlog worth $21 billion.
The company’s major competitors in the aviation sector include Honeywell International Inc. (HON) and United Technologies Corp. (UTX) both of which reported double digit profit growth in the third quarter.
Sales in the Healthcare division grew 9% year over year to $4.3 billion with an operating profit of growth of 5%. During the quarter, healthcare bagged orders worth $4.6 billion which was up 11% year over year. Further, the equipment backlog also grew 9% year over year to $4.3 billion.
Although revenues for GE Capital were flat year over year, its profit grew a robust 79% year over year, driven by higher margins and lower losses during the quarter.
Margins
Gross margins during the quarter declined 172 basis points to 74.1% versus 72.3% in the prior year quarter due to pressure in the renewable sector, especially pricing pressure on wind turbines.
Balance Sheet
Year-to-date, GE had cash of $91 billion. Year-to-date, the company bought back $1 billion worth of stock.
Year-to-date, cash generated from Industrial activities totaled $6.5 billion.
Outlook
General Electric is positive about its performance in fiscal 2011. The Industrial division is expected to continue to benefit from strong growth in the Healthcare, Transportation services, higher research and development expenses and the launch of its new series of jet engines Genx. Profits at GE Capital are expected to be driven by lower losses and real estate turnaround.
General Electric currently holds a Zacks #3 Rank, which implies a short term Hold rating.
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