In a recent investor meeting, General Electric Company (GE) reiterated its strategic goal to focus on its industrial manufacturing roots and reduce dependence on the financial sector as it aims to increase the corporate profit share from the industrial units. Jeff Immelt, the Chief Executive of the company, further believes that 2014 will be relatively better than 2013 with record backlog of orders.
During the investor presentation, General Electric envisioned double-digit growth in profits from aviation, healthcare and other industrial units in 2014, driven by higher investments in the industrial sector. Operating profit margin from the industrial businesses is expected to be 15.8% this year, up from 15.1% in 2012. At the same time, the company observed that it is currently on track to reduce its profit share from the financial units to 30% of the total by 2015.
Earlier, in its concerted effort to reduce credit risks, General Electric had announced its plans to shrink its finance business by 2015 through the divestiture of its North American consumer lending unit. The strategic move was arguably the biggest step in restructuring GE Capital’s portfolio to shield the parent company from intense market volatilities that plagued the market during the 2008-09 financial crisis. The spin-off will also realign the corporate strategy of the company to a manufacturing-based entity with emphasis on big-ticket items such as medical equipment and scanners.
Moving forward, total revenue in 2014 is expected to remain flat or increase by a modest 5% compared to the previous year. Revenues from the Power & Water segment, which were plagued by weaker demand for power turbines, are likely to improve in 2014 with stringent cost-cutting measures. However, revenues from the Transportation segment are expected to fall due to a soft North American coal market.
General Electric is one of the largest and the most diversified technology and financial services corporations in the world. With products and services ranging from aircraft engines, power generation, water processing, and security technology to medical imaging, business and consumer financing, media content, and industrial products, the company serves over 100 million customers worldwide. Its segments include Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Home & Business Solutions, and GE Capital.
General Electric currently has a Zacks Rank #3 (Hold). Other companies in the industry that are worth mentioning include ITT Corp. (ITT), Hutchison Whampoa Ltd. (HUWHY) and Raven Industries Inc. (RAVN), each having a Zacks Rank #2 (Buy).
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