General Electric Results Top Expectations -- 4th Update

By Ted Mann and Chelsey Dulaney 

General Electric Co. delivered solid results from its industrial businesses thanks to strength in the U.S. economy and demand for jet engines and gas-powered electrical turbines.

Revenue rose 1.5% in the second quarter to $32.75 billion from the previous year beating Wall Street forecasts. Earnings from its industrial operations rose 5% helped by a companywide focus on slashing costs.

GE needs to show that it can run its industrial businesses well as it sells off the bulk of its banking business that has at times accounted for around half of GE's earnings. By 2018, Chief Executive Jeff Immelt expects 90% of the company's profits to come from selling equipment for airplanes, railroads, oil extraction and electricity generation.

"The environment remains one of slow growth and volatility, particularly in growth markets, while the U.S. is gradually improving," said Mr. Immelt in a news release.

Over all, GE said orders were up 8% for the quarter, boosted by a 37% increase in its aviation segment and a 29% jump in its business that sells power turbines.

Shares of GE rose about 1% in midday trading to $27.29.

Scott Davis, an analyst at Barclays who rates GE overweight, said the strong industrial performance in the second quarter was an encouraging sign that the company is gaining ground. "GE is rebuilding credibility and has put up very respectable numbers the last several quarters," Mr. Davis said in a note to investors Friday.

GE has two major transactions tangled up in regulatory limbo. U.S. antitrust enforcers are seeking to block its $3.3 billion sale of its appliances unit to Electrolux AB, while European regulators are holding up the $17 billion acquisition of Alstom SA's power businesses that was announced last year.

GE on Thursday submitted concessions to European regulators, who have challenged the Alstom acquisition on the grounds that it would hamper competition for heavy-duty gas turbines on the continent. Regulators will decide by Sept. 11 whether to let the Alstom deal go through.

On Friday, Mr. Immelt deflected a question about his "plan B" in the event the Alstom deal collapses. "I'm just not going to go there," he said. "We like this deal, it's our intention to close the deal, and that's really where our stand is."

The company says it expects to close on both the appliance and Alstom deal this year.

Meanwhile, Mr. Immelt raised his target for selling off operations in GE Capital, the company's massive banking arm. By year-end, the company should have signed agreements to sell pieces valued at between $120 billion and $150 billion, up from $100 billion.

At the same time, GE is coping with serious headwinds due to slowing growth in emerging markets and the continued pressure from the low price of oil.

Crude oil's slump slashed profit at GE's oil and gas business by 12% to $583 million and its revenue slipped 15%. At GE's Lufkin subsidiary, which makes oil production equipment, orders fell 40% in the quarter, according to Jeff Bornstein, GE's chief financial officer. Service revenue slumped in all of its units as oil exploration and production companies have slashed budgets to cope with falling prices

The company has warned investors that its oil and gas sales and earnings could fall as much as 10% this year.

While GE saw good growth in the U.S. for its health-care business, which makes devices like CT scanners and ultrasound machines, there was trouble in China, where orders fell 9%. Nonetheless, Mr. Bornstein said, "We do not think there's an underlying demand problem."

The company reported a loss of $1.36 billion, or 13 cents a share, compared with a profit of $3.55 billion, or 35 cents a share, a year earlier.

Write to Ted Mann at [e-mail] and Chelsey Dulaney at [e-mail]

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