NEW YORK, N.Y. – General Electric’s shift back to its manufacturing roots is paying off.
The conglomerate founded by light bulb inventor Thomas Edison has pumped billions of dollars into new energy-related businesses during the past few years while selling its stake in NBC, commercial real estate and other businesses.
The move has softened the blow from the recession, and it expects double-digit earnings growth this year.
GE said Friday that net income fell 16 per cent in the second quarter, mainly due to lingering charges from financing companies that were sold off several years ago. Its energy infrastructure business, meanwhile, reported double-digit growth in the period, and profits surged for its transportation business. The company’s quarterly results topped Wall Street expectations.
GE is wading through “a still volatile global economy,” CEO Jeff Immelt said. But its core businesses are growing profits, and “we ended the quarter with a record backlog.”
Shares rose 7 cents to close at US$19.87 on Friday after trading as high as $20.37 earlier in the day, approaching their 52-week high of $21 per share.
The industrial and financial giant posted net income of $3.11 billion, or 29 cents per share, in the April-June period. That compares with $3.69 billion, or 35 cents per share, a year earlier.
Excluding pension costs and losses from discontinued businesses, GE earned 38 cents per share, a penny above analysts’ average expectations of 37 cents per share.
Revenue rose 2 per cent to $36.5 billion, led by strong results in GE’s industrial business. Analysts expected slightly higher revenue of $36.77 billion, according to FactSet.
GE said its net income was weighed down in the quarter by a number of charges that had little to do with its core businesses. GE booked a $553 million charge related to the sale of its WMC Mortgage Corp. and its Japanese consumer finance business in 2007 and 2008. GE also adjusted its pension costs higher.
Meanwhile, its energy infrastructure and GE Capital businesses reported higher profits in the period.
GE Capital, the company’s lending arm, increased profits 31 per cent as it sold off dozens of properties and booked smaller charges related to a drop in real estate values. GE plans to sell its business property lending business to EverBank Financial Corp. for $2.51 billion by the end of 2012.
Morningstar analyst Daniel Holland said it makes sense for GE to shed assets that have little to do with the company’s traditional industrial businesses. GE knows the energy and manufacturing businesses, and that is where it should remain, Holland said.
“It’s what they’re really good at,” he said. “It’s why they can continue to drive their competitive advantages.”
Energy infrastructure, which includes wind and natural gas turbines, solar panels and a variety of other products and services, increased profits 13 per cent to $1.76 billion. GE said it shipped 726 wind turbines in the quarter, more than double what it shipped in the same period last year. New orders for wind turbines have dropped off since then, however, reducing GE’s infrastructure orders by 1 per cent.
In a separate announcement, GE said that it plans to split its energy business into three separate operations: GE Power and Water in Schenectady, New York, GE Oil and Gas in Florence, Italy, and GE Energy Management in Atlanta. Immelt said that the move will streamline its various energy operations and cut about $200 million to $300 million in costs. GE said the head of the division, John Krenicki, has decided to leave the company at the end of the year.
GE reaffirmed its outlook for double-digit growth in earnings per share, excluding any special items.