This summary is based on the first quarter fiscal 2007 earnings call conducted by General Electric Co. (GE) on April 13, 2007.
First Quarter Highlights
GE reported
earnings rose 2.25% to $4.51 billion or 44 cents per share compared to $4.44 billion or 42 cents a share. Revenue rose 5.7% to $40.2 billion from $38.03 billion a year ago. Organic revenue rose 8% and asset rose 22%. Backlog of major equipment advanced 32% to $37 billion. Return on total capital increased 100 basis points to 18.8% and operating profit margin rose 1.3% to 14.4%, and operating cash flow gained 10% to $7.4 billion.
The company anticipates
strong year for infrastructure, aviation, energy and commercial finance business. Emerging markets orders are up 14% and service revenue rose 10% in the first quarter. Service portfolio rose 9% to $94 billion.
Operating profit at infrastructure segment was 16%, at industrial segment 8.1%, at healthcare 14.3% and at NBCU 19.8%. Overall operating profit at the company declined 11.3% from 11.5%.
Orders for aviation for major equipment declined 10%, energy segment rose 17%, healthcare gained 2%, oil and gas advanced 12% and transportation declined 63% totaling 2% decline in overall orders but rose 3% including services. New total orders for major equipment totaled $9.5 billion.
Loan delinquencies for equipment financing were reported at 1.26% and at GE Money were at 5.48% totaling to 5.18%.
Total restructuring cost was reported at $354 million with a total headcount reduction of 3,900. Restructuring expense by business is as follows: $85 million in infrastructure, $143 million in industrial, $48 million in commercial finance and $47 million in GE Money, $22 million in healthcare and $9 million in NBCU.
Infrastructure revenue were up 18%, segment profit were up 28%, orders were 2%, equipment backlog was up 35% and the company forecasted equipment revenue to rise 20% in the second quarter. GE Money revenue rose 14% and segment profit roe 2% and asset rose 20% and forecasted 10% rise in segment profit in the second quarter. Broad based global revenue growth of 2% was offset by weakness in WMC & Japan.
Industrial segment revenue rose 5% with retail appliance sales growth of 5% and but the segment profit fell 20%. Revenue at lighting rose 10% and productivity in the division rose 4.3%. Revenue at plastics declined 3% on 1% decline in profit and 4% fall in price and 32% price hike in benzene.
Revenue at
NBC Universal declined 22% from a year ago, and revenue declined 8% excluding Olympics. Segment profit rose 6% from a year ago. Revenue at healthcare was flat and profit rose 5%.
Revenue at
Commercial finance segment rose 15% and profit rose 21% and assets grew 26%.
Tight market conditions and underwriting guidelines have had impact in lending for
sub-prime loans issues by GE. The total loans issued in fourth quarter of 2006 were over $9 billion and only $3.4 billion loans were issued in the first quarter and only $500 million of loans in March 2007. After tax basis reserves had to be increased by $330 million and pre-tax basis that was app $550 million.
There is new accounting guidance on tax rates.
It is called FIN 48, accounting for uncertain tax positions. With FIN 48, the company cannot include any prior-period adjustments in its projected-total year rate. If the company has any tax settlements reached with the IRS on prior periods, it would have to include that only in the period the settlement occurred. Quarterly tax rates are going to fluctuate more.
- Global revenues were $19.6 billion, up 9%.
- Developing markets revenues were $7 billion, up 14%
- Services orders were up 11%.
- The GECS dividend is up from both their net income growth, with a 40% regular dividend, and also from the proceeds of the sale of both Swiss Re stock and GE Life that were completed.
- The company had a gain that was offset by restructuring, and the tax rate was in line with expectations.
- The Industrial rate cash flow was up to $3.5 billion, up 6% and in line with expectations.
- Demand for global infrastructure in Energy, Aviation and Oil & Gas businesses helped Infrastructure deliver 28% segment profit growth, while asset and earnings growth in Capital Solutions and Real Estate led to 21% segment profit growth at Commercial Finance.
- Global growth was strong with developing markets revenues of $7 billion and total global revenues of $19.6 billion, increasing 14% and 9%, respectively.
The company delivered ninth straight quarter of organic revenue growth of 2-3 times global GDP.
Specifically, services revenues grew 10% and Imagination Breakthrough programs contributed $5 billion of revenue - all driven by growth initiative.
- Total orders for the company were up 3%, reflecting comparable first quarter 2006 orders that were particularly robust.
- Major equipment backlog grew to $37 billion, up 32% year-over-year, and increasing $5 billion from year-end 2006.
- Major equipment orders were 50% greater than shipments in the quarter, providing visible future organic growth. This growing installed base is creating strong demand for the company’s services.
- Services orders were up 11%, and Customer Service Agreement (CSA) backlog stands at $94 billion, an increase of 9% year-over-year.
- Segment profit grew 13% and segment operating profit margin increased 130 basis points to 14.4%, on track to meet the company’s goal of 100 basis points of margin expansion for the year. Improving margins are driving higher returns.
- GE Money’s earnings were tempered by challenges at its U.S. mortgage business (WMC), and Healthcare had a temporary regulatory suspension on shipments of its surgical supplies that affected their performance.
The company realized a $0.6 billion pre-tax gain from the sale of its common stock in Swiss Re.
At the same time, the company incurred several costs, including a $0.2 billion charge for an asbestos-related legal ruling and $0.4 billion of restructuring and other charges, including $0.1 billion for Industrial, $0.1 billion for Infrastructure and $0.1 billion for Commercial Finance and GE Money. These items affected the GE and GE Capital Services earnings contributions.
- The company’s consolidated tax rate was 17%, in line with its expectations.
- Earnings from continuing operations were $4.5 billion, up 8% from $4.2 billion in first quarter 2006.
- EPS from continuing operations were 44 cents per share, up 10% from last year’s 40 cents per share.
- GE’s Infrastructure and Commercial Finance businesses contributed strong double-digit earnings growth.
- Including the effects of discontinued operations, net earnings were $4.5 billion (44 cents per share) in 2007 and $4.4 billion (42 cents per share) in first quarter 2006.
- Continuing revenues grew 6% to $40.2 billion.
- Financial services revenues grew 16% over last year to $17.3 billion, reflecting core growth and the net effects of acquisitions.
- Industrial sales were $22.9 billion, an increase of 7% from first quarter 2006 excluding the net effects of dispositions and the lack of a current-year counterpart to the 2006 Olympics broadcasts, and down 1% including those effects.
- Cash generated from GE’s operating activities totaled $7.4 billion, up 10% from $6.7 billion last year, reflecting a 14% increase in GE Capital Services’ dividends, including proceeds from sales of insurance holdings; and a 6% increase from the industrial businesses.
The company started the year with extra cash, which was $4.5 billion, basically the prefunding for Vetco.
