General Electric (GE) delivered strong results for the final quarter of its fiscal 2012. Analysts had estimated an EPS of $0.42 from revenues of $38.74 billion. Instead, the company delivered an EPS of $0.38 and revenues of $39.33 billion. Excluding extraordinary items, the quarterly revenues increased 3.6%. Quarterly profits increased from $3.73 billion to $4.01 billion year-over-year in Q4 2012.
In 2011 GE's operating margin was 11.9%, but that now stands at 13.4%. Margin expansion is indicative of the firm's longer-term plans to move away from financing and media - for example the sale of NBC Universal - and back towards medical devices and aviation. Full-year operating earnings in 2012 increased by 8% to $16.1 billion, whereas full-year revenues were $147 billion - a rise of 3% from 2011 adjusted revenues after excluding the proceeds from the NBC Universal sale.
GE spent a total of $5.2 billion in stock repurchases in 2012, including $2.1 billion spent in Q4 - shrinking the float by approximately 1% on its market cap of $235 billion. The company also returned $12.4 billion to investors as dividends and buybacks in 2012 in an effort to regain investors' confidence, which has been battered due to dividend cuts since the global financial crisis of 2008.
The healthcare and aviation segments performed pretty well, which, as I said before, helped drive margin expansion. The income from Industrial businesses (i.e. aviation and energy infrastructure) was $4.89 billion, indicating an impressive increase of 12%. GE Capital's revenue increased by 1.7% to $11.77 billion, while profit increased by 8.9% to $1.81 billion.
Although the global economic environment was sluggish, GE managed to end the year on a high note. Buying back 2.5% of your float in a rising market will do that. CEO and Chairman Jeff Immelt believes developing economies are attractive but its outlook remains "uncertain." Nonetheless, investing in China remains one of GE's top priorities. In 2012, the Chinese demand for medical equipment and jet engines remained robust as GE posted a 19% increase in annual revenues in the country to nearly $6 billion. GE is aiming to significantly multiply its Chinese revenue to $20 billion annually by focusing on healthcare, aircraft, and clean energy projects. These are three sectors which have extremely strong demographic pull since China's working age population has begun shrinking.
New orders look strong, with GE booking a number of them in Q4, including power conversion business in Abu Dhabi worth $10 million; supplying services and turbo machinery equipment to Petroleo Brasileiro (PBR) worth $500 million; and ZLC wastewater treatment technology to be installed in Texas. Such projects validate GE's strategy to return to industrial organic revenue growth versus underwriting mortgages.
An important divestment for GE in 2012 was Thailand's Bank of Ayudhya (BKAHF.PK), in which it had 33% holding since 2007. GE has now sold 7.6% stake to institutional investors while it holds the decision to sell the remaining share after examining all the strategic options. Japan's biggest bank Mitsubishi UFJ Financial Group and Malaysia's CIMB Group Holdings have already bid for the estimated $1.5 billion stake. The Thai bank is one of the best performing financial institutions in the region and the leading retail bank of the country with a market cap of around $5.9 billion. So, GE is in a good position to extract maximal value from the sale.
GE launched Ecomagination in 2005 and the GEnx aircraft engine, which offers 15% lower fuel burn while cruising, used in Boeing's (BA) now-grounded Dreamliner aircraft is one such advance. So far, two incidents of GEnx engine failure have been reported on a Boeing 787 aircraft and a 747-8 freighter jet, but GE's management insists that current problems are more closely associated with Boeing and won't have any "material impact" on GE. Until this situation resolves itself deals like the $400 million sale to Aeromexico have to be discounted from future earnings.
The Dreamliner is too important to politically connected firms like Boeing and GE to stay grounded for long, but the FAA is notorious for being meticulous to the point of exasperation when it comes to safety issues. Given how long the development cycle is to get FAA approval for any part that goes into an airplane, the 787 problems will not be swept under the rug quickly as the FAA is now just as culpable as anyone of the contractors.
But, with emerging market growth, a focus on streamlined development and production and a record order book of pending business, GE looks like it is well prepared, despite the 787, to weather any stormy weather on the global horizon that I'm seeing in late 2013 and into 2014.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.