Total-Year Framework On Track
- 3Q operating EPS $0.38, +6%
- 3Q Industrial segment profit +9%, YTD +10%
- 3Q Industrial segment organic revenues +4%, YTD +5%
- 3Q margins +90 bps, YTD +50 bps
- 3Q orders +22%, Growth market orders +34%, U.S. orders +25%
- Cash generation of $7.2 billion year-to-date, $3.8 billion generated in 3Q
- GE Capital ENI (excluding cash and equivalents) at $365 billion, down 5% vs. year-ago
FAIRFIELD, Conn. – October 17, 2014 – GE [NYSE: GE] announced today third-quarter 2014 operating earnings of $3.8 billion, with operating earnings per share of $0.38, up 6% from the third quarter of 2013. GAAP earnings from continuing operations were $3.5 billion, with earnings per share of $0.34, up 6% from last year. Revenues were $36.2 billion for the quarter, up 1% from the year-ago period.
“GE performed well in the quarter, with industrial segment profit growth of 9% and significant margin expansion,” said GE Chairman and CEO Jeff Immelt. “The environment is volatile, but infrastructure growth opportunities exist, and GE is executing well. This is reflected in healthy order growth and margin expansion. During the quarter we continued to execute on our portfolio strategy, including the successful IPO of Synchrony Financial and announcing the sale of our Appliances business.”
Industrial segment profits rose 9% in the third quarter to $4.3 billion and industrial segment margins expanded 90 basis points. Industrial segment organic revenue growth was 4%. Orders were up 22% in the quarter, with increases in five of six segments. Growth market orders rose 34% with increases in five of nine growth regions. GE expects industrial organic revenue growth for the year to be at the higher end of the 4-7% range.
GE’s backlog of equipment and services at the end of the quarter was a record $250 billion, up $21 billion over the year-ago period. New technologies drove a 31% increase in equipment orders in the quarter; these included orders for more than 1,000 Tier 4-compliant locomotives, 4 HA gas turbines, and launch orders for the GE9X aircraft engine. Services orders grew 10% in the quarter. As part of GE’s strategy to grow its services business, the Company also announced in October the opening of its Predix™ Industrial Internet platform to all users starting in 2015, and that GE Predictivity™ solutions revenues are expected to exceed $1 billion in 2014.
During the quarter GE completed the IPO of its North American Retail Finance business, Synchrony Financial, the first step of a planned, staged exit from the business. GE is targeting a complete exit from Synchrony Financial through a split-off transaction in late 2015. In the third quarter GE also agreed to sell its Appliances business to Electrolux for $3.3 billion, bringing total announced dispositions to $4.7 billion for the year. The sale is expected to generate an approximate after-tax gain of $0.05-$0.07 per share at closing. Both transactions are subject to customary regulatory and other approvals. GE continues to work through approvals for its acquisition of Alstom’s Power and Grid businesses, targeted to close in 2015. GE expects Alstom to be accretive to earnings in 2015, and add $0.06-$0.09 per share in 2016. Through these transactions, GE is executing on its strategy to achieve 75% of its earnings from its Industrial businesses by 2016.
Simplification and value gap improvements drove GE’s strong margin expansion of 90 basis points in the quarter and 50 basis points year-to-date, with six of seven businesses showing positive margin growth in the quarter. GE continues to make good progress with its simplification goals. The Company is on track to meet its goal of $1 billion or more in structural cost-out for the year, with $674 million of cost-out through the third quarter.
GE Capital continued its strategy to decrease the size of its non-core portfolio. ENI (excluding cash and equivalents) was at $365 billion at quarter-end, down $6.5 billion from last quarter and down 5% from the year-ago period. GE Capital is on track to close the sale of its GE Money Bank AB (Nordics) consumer finance business in the fourth quarter of 2014. Additionally, GE Capital Aviation Services announced this week an agreement to acquire Milestone Aviation Group, the helicopter lessor, for $1.78 billion. The acquisition is in line with GE Capital’s strategic plan of growing in core areas aligned with GE’s industrial business. General Electric Capital Corporation’s (GECC) estimated Tier 1 common ratio (Basel 1) rose 79 basis points from the year-ago period to 12.1%, and net interest margin was strong at 5%. Year-to-date, GECC has returned $2.2 billion in dividends to the parent.
Cash from GE operating activities (CFOA) was $7.2 billion year-to-date, and the Company is on track to meet its 2014 goal of $14-$17 billion in CFOA. GE ended the quarter with $90 billion of consolidated cash and cash equivalents. The Company has returned $8.4 billion to shareowners year-to-date, including $6.6 billion of dividends and $1.8 billion of stock buyback.
Immelt concluded, “Our total-year framework is intact, and we are executing on our goals. Year-to-date, our industrial segment profit is up 10% and margins are 50 basis points higher. GECC is returning cash to the parent. Capital allocation remains balanced, with both opportunistic M&A and cash returned to shareowners. And this year’s portfolio moves have made GE more focused on its strengths in core infrastructure and technology. We have a big backlog, market diversity, strong recurring revenue and a well-established cost-out program. We expect to continue to deliver in a volatile world.”
Third-quarter operating earnings were $3.8 billion, up 3% from third-quarter 2013, and operating EPS was $0.38, up 6%. GAAP earnings from continuing operations (attributable to GE) were $3.5 billion, up 6%, or $0.34 per share, up 6% from the third quarter of 2013.
Including the effects of discontinued operations, third-quarter net earnings attributable to GE were $3.5 billion ($0.35 per share) compared with $3.2 billion ($0.31 per share) in the third quarter of 2013.
Third-quarter revenues increased 1% to $36.2 billion. Industrial sales of $26.0 billion increased 3% compared to the third quarter of 2013. GECC revenues of $10.5 billion decreased 1% from last year.
Cash generated from GE operating activities year-to-date totaled $7.2 billion, with $3.8 billion generated in the third quarter. Cash generated from Industrial operating activities year-to-date totaled $5.0 billion, with $3.0 billion generated in the third quarter.
GE will discuss preliminary third-quarter results on a webcast at 8:30 a.m. ET today, available at www.ge.com/investor. Related charts are now posted on our website for your review prior to the call.
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Caution Concerning Forward-Looking Statements:
This document contains “forward-looking statements” – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” or “target.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about expected income; earnings per share; revenues; organic growth; margins; cost structure; restructuring charges; cash flows; return on capital; capital expenditures, capital allocation or capital structure; dividends; and the split between Industrial and GE Capital earnings. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include: current economic and financial conditions, including interest and exchange rate volatility, commodity and equity prices and the value of financial assets; the impact of conditions in the financial and credit markets on the availability and cost of General Electric Capital Corporation’s (GECC) funding, GECC’s exposure to counterparties and our ability to reduce GECC’s asset levels as planned; the impact of conditions in the housing market and unemployment rates on the level of commercial and consumer credit defaults; pending and future mortgage securitization claims and litigation in connection with WMC, which may affect our estimates of liability, including possible loss estimates; our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so; the adequacy of our cash flows and earnings and other conditions which may affect our ability to pay our quarterly dividend at the planned level or to repurchase shares at planned levels; GECC’s ability to pay dividends to GE at the planned level, which may be affected by GECC's cash flows and earnings, financial services regulation and oversight, and other factors; our ability to convert pre-order commitments/wins into orders; the price we realize on orders since commitments/wins are stated at list prices; customer actions or developments such as early aircraft retirements or reduced energy demand and other factors that may affect the level of demand and financial performance of the major industries and customers we serve; the effectiveness of our risk management framework; the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of financial services regulation; adverse market conditions, timing of and ability to obtain required bank regulatory approvals, or other factors relating to us or Synchrony Financial that could prevent us from completing the Synchrony split-off as planned; our capital allocation plans, as such plans may change including with respect to the timing and size of share repurchases, acquisitions, joint ventures, dispositions and other strategic actions; our success in completing announced transactions, such as the proposed transactions and alliances with Alstom, and our ability to realize anticipated earnings and savings; our success in integrating acquired businesses and operating joint ventures; the impact of potential information technology or data security breaches; and the other factors that are described in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.
This document includes certain forward-looking projected financial information that is based on current estimates and forecasts. Actual results could differ materially.