SAFRY Safran SA (PK)

Despite continued macroeconomic headwinds, General Electric (GE) reported strong fourth quarter 2012 results with operating earnings of $4.7 billion or 44 cents per share compared to $4.1 billion or 39 cents in the year-ago quarter, representing a year-over-year increase of 13%.

This was the eleventh consecutive quarter in which the company witnessed double-digit growth in operating earnings. The operating earnings for the reported quarter were marginally above the Zacks Consensus Estimate of 43 cents.

On a GAAP basis, the company reported quarterly earnings of $4.3 billion or 41 cents per share from continuing operations compared to $4.0 billion or 37 cents in fourth quarter 2011. For full year 2012, operating earnings were $16.1 billion or $1.52 per share compared to $14.9 billion or $1.31 in the prior year. GAAP earnings for 2012 were $14.7 billion or $1.39 per share from continuing operations compared to $14.2 billion or $1.24 in 2011.  

Revenues

Revenues for the quarter came in at $39.3 billion for the quarter, reflecting a 4% rise year over year. While industrial segment revenue grew 4%, GE Capital revenue surged 2% year over year. Strong performance of the Industrial portfolio was driven by solid contributions from the Oil & Gas and Aviation segments, partially offset by Transportation segment. Revenues for the reported quarter exceeded the Zacks Consensus Estimate of $38.4 billion.

For full year 2012, revenues were relatively flat compared to the previous year at $147.4 billion. While industrial segment revenue grew 8%, GE Capital revenue dipped 6% year over year. Strong performance of the Industrial portfolio during the year was driven by solid contributions from all the segments, particularly Energy Management and Transportation. Revenues for full year 2012 exceeded the Zacks Consensus Estimate of $147.0 billion.

Infrastructure orders for the reported quarter increased 2% year over year to $28.5 billion, with ratio of equipment orders received to orders billed (book-to-bill) being 1.2. Total backlog of equipment and services at quarter-end reached a record level of $210 billion. During fourth quarter 2012, General Electric received orders from Petrobras Argentina SA (PZE) for $0.4 billion of turbomachinery.

The company also penned a $0.2 billion contract to supply sub-sea production equipment to the Lianzi project of Chevron Corporation (CVX) and $0.4 billion worth of wind turbines to Renova Energia in Brazil. In addition, CFM International procured an agreement from Alaska Airlines for 50 new Boeing 737 aircraft engines. CFM International is a 50-50 joint venture between Snecma S.A., a French multinational aircraft manufacturer and subsidiary of Safran SA (SAFRY), and GE Aviation Systems.

The company witnessed strong revenue growth during the year from Russia, Latin America, Australia/New Zealand, China, Sub-Saharan Africa and ASEAN countries. At the same time, the company launched new products like FlexEfficiency™ 60, a new power plant technology with turbines; and the Tier 4 Evolution® Series, reportedly the most fuel-efficient freight locomotive in its history.  

Revenue by Segment

General Electric reorganized its Energy Infrastructure segment into three separate segments effective Oct 1, 2012, namely – Power & Water, Oil & Gas, and Energy Management. Consequently, the company presently has eight operating segments: Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Home & Business Solutions, and GE Capital.

During the reported quarter, Oil & Gas and Aviation recorded the highest revenue growth year over year at 11% each, followed by Power & Water, Home & Business Solutions, and GE Capital at 2% each. However, Transportation and Energy Management segments posted a revenue decline of 7% and 1% respectively for the quarter.

For full year 2012, the trend was slightly different with all segments, except GE Capital reporting revenue growth. Transportation and Energy Management segments posted a revenue increase of 15% each for the year, followed by Oil & Gas (12%), Power & Water (10%), Aviation (6%), Home & Business Solutions (4%), and Healthcare (1%). GE Capital revenue dipped 6% year over year

Margins, Balance Sheet and Cash Flow

Total operating income for the reported quarter grew 11% year over as all the segments recorded healthy profits, the notable among them being Energy Management (36%), Aviation (22%) and Oil & Gas (14%). Total operating income for full year 2012 surged 11% year over as all the segments recorded solid profits, the most impressive among them being Energy Management (68%), Transportation (36%), and Home & Business Solutions (31%).

Cash generated from operating activities for full year 2012 was $17.8 billion, up 48% from the prior-year period. Cash and cash equivalents were $77 billion at year-end 2012. The company repurchased $2.1 billion worth of stock during the reported quarter, bringing its tally for the year to $5.2 billion. During 2012, General Electric returned $12.4 billion to investors through dividend payouts and buybacks. The company also raised its quarterly dividend by 12% to 19 cents per share, the fifth such increase in three years.

Outlook

With a healthy growth in both the top- and bottom-line, solid operating margins, and strong order backlogs, General Electric expects to continue its bull run in 2013 and simultaneously benefit the shareholders with increased dividend payouts. We also remain encouraged by the growth momentum and maintain our Neutral recommendation on the stock, which currently has Zacks Rank #4 (Sell).

 
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