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Summary

  • Top and bottom line results decreased from last year.
  • Earnings actually beat analyst expectations.
  • The stock is inexpensively valued.

The last time I wrote about General Electric Company (NYSE:GE), I stated:

"Due to the inexpensive fundamentals, slightly bullish technicals, and the high yield, I'm going to actually pull the trigger on this particular name but only for a small batch." Since that article was published, the stock is up 4.4% while the S&P 500 (NYSEARCA:SPY) is up 0.67%. General Electric is a diversified technology and financial services company operating in the segments of aircraft engines, power generation, industrial products, water processing, household appliances, medical imagine, and business and consumer financing.

The company reported earnings before the market opened on 17Apr14 and on the surface the results were mixed with the company reporting earnings of $0.33 per share (beating estimates by $0.01) on revenue of $34.2 billion (missing estimates by $250 million). What I'd like to do at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.

Segment Revenue

Revenue

1Q14

4Q13

1Q13

Q/Q

Y/Y

Power and Water

$ 5,509

$ 7,686

$ 4,825

-28%

14%

Oil and Gas

$ 4,308

$ 5,306

$ 3,399

-19%

27%

Energy Management

$ 1,672

$ 2,012

$ 1,748

-17%

-4%

Aviation

$ 5,778

$ 6,170

$ 5,074

-6%

14%

Healthcare

$ 4,198

$ 5,117

$ 4,289

-18%

-2%

Transportation

$ 1,227

$ 1,460

$ 1,422

-16%

-14%

Home & Business Solutions

$ 1,857

$ 2,196

$ 1,917

-15%

-3%

GE Capital

$ 10,515

$ 11,077

$ 11,468

-5%

-8%

Corporate items & eliminations

$ (886)

$ (642)

$ 801

38%

-211%

Total Revenue

$ 34,178

$ 40,382

$ 34,943

-15%

-2%

Upon first glance at the revenues we see a 14% gain in the Power & Water segment. The Power & Water division accounted for 16% of total revenues during the quarter. However, from the previous quarter revenues dropped 28%. The Oil & Gas division generated 27% more revenue from last year but dropped 19% from last quarter. The Oil & Gas division accounted for 13% of total revenues in the first quarter. Aviation created 14% more revenue than last year and decreased 6% from last quarter. Aviation accounted for 17% during the first quarter. Transportation revenue decreased 14% from last year and 16% from last quarter. Transportation revenues accounted for 3.6% of total revenues.

Income Statement

Revenues and Other Income

1Q14

4Q13

1Q13

Q/Q

Y/Y

Sales of Goods and services

$ 23,850

$ 28,701

$ 22,187

-17%

7%

Other Income

$ 196

$ 932

$ 1,615

-79%

-88%

GECC earnings from continuing operations

$ -

$ -

N/A

N/A

GECC revenues from services

$ 10,132

$ 10,749

$ 11,141

-6%

-9%

Total Revenues

$ 34,178

$ 40,382

$ 34,943

-15%

-2%

Costs and Expenses

Cost of sales, operating and administrative expenses

$ 26,718

$ 31,039

$ 26,081

-14%

2%

Interest and other financial charges

$ 2,414

$ 2,468

$ 2,603

-2%

-7%

Investment contracts, insurance losses and insurance annuity benefits

$ 620

$ 654

$ 663

-5%

-6%

Provision for losses on financing receivables

$ 970

$ 1,562

$ 1,457

-38%

-33%

Total Costs and Expenses

$ 30,722

$ 35,723

$ 30,804

-14%

0%

Earnings from continuing operations before income taxes

$ 3,456

$ 4,659

$ 4,139

-26%

-17%

Benefit (provision) for income taxes

$ (516)

$ 490

$ (508)

-205%

2%

Earnings from continuing operations

$ 2,940

$ 5,149

$ 3,631

-43%

-19%

Earnings (loss) from discontinued operations, net of taxes

$ 12

$ (787)

$ (120)

-102%

110%

Net Earnings

$ 2,952

$ 4,362

$ 3,511

-32%

-16%

Less net earnings (loss) attributable to noncontrolling interests

$ (47)

$ 158

$ (16)

-130%

194%

Net earnings attributable to the company

$ 2,999

$ 4,204

$ 3,527

-29%

-15%

Preferred stock dividends declared

$ -

$ -

$ -

N/A

N/A

Net earnings attributable to GE common shareholders

$ 2,999

$ 4,204

$ 3,527

-29%

-15%

Earnings from continuing operations

$ 2,987

$ 4,991

$ 3,647

-40%

-18%

Adjustment (net of tax): Non-operating pension costs/(income)

$ 12

$ 426

$ (120)

-97%

-110%

Operating earnings (non-GAAP)

$ 2,999

$ 5,417

$ 3,527

-45%

-15%

Diluted Shares

10,123

10,162

10,433

0%

-3%

Operating earnings - diluted earnings per share

$ 0.30

$ 0.53

$ 0.34

-44%

-12%

Total revenues have decreased 2% from last year. Another glaring item on the income statement is that provision for losses on financing receivables have decreased 33%. Earnings from continuing operations before income taxes have decreased 17% while earnings from continuing operations have decreased 19%. Net earnings have decreased 16% from last year and from there net earnings attributable to the company have decreased 15% from last year. After buying back shares the bottom line shows a decrease of 12% from last year.

Balance Sheet

Assets

1Q14

4Q13

1Q13

Q/Q

Y/Y

Cash & marketable securities

$ 132.7

$ 132.5

$ 132.5

0%

0%

Receivables

$ 21.0

$ 21.4

$ 21.4

-2%

-2%

Inventories

$ 18.9

$ 17.3

$ 17.3

9%

9%

Financing receivables - net

$ 237.0

$ 241.9

$ 241.9

-2%

-2%

Property, plant & equipment - net

$ 67.7

$ 68.8

$ 68.8

-2%

-2%

Investment in GECC

$ -

$ -

$ -

N/A

N/A

Goodwill & intangible assets

$ 93.9

$ 92.0

$ 92.0

2%

2%

Other assets

$ 79.6

$ 80.3

$ 80.0

-1%

-1%

Assets of businesses held for sale

$ -

$ 0.1

$ 0.1

-100%

-100%

Assets of discontinued operations

$ 1.5

$ 2.3

$ 2.3

-35%

-35%

Total Assets

$ 652.3

$ 656.6

$ 656.3

-1%

-1%

Liabilities and equity

Borrowings and bank deposits

$ 380.6

$ 383.0

$ 383.0

-1%

-1%

Investment contracts, insurance losses and insurance annuity benefits

$ 27.0

$ 26.5

$ 26.5

2%

2%

Other liabilities

$ 105.4

$ 106.4

$ 106.1

-1%

-1%

Liabilities of businesses held for sale

$ -

$ -

$ -

N/A

N/A

Liabilities of discontinued operations

$ 1.3

$ 3.0

$ 3.9

-57%

-67%

GE shareowners' equity

$ 131.8

$ 131.5

$ 130.6

0%

1%

Noncontrolling interests

$ 6.2

$ 6.2

$ 6.2

0%

0%

Total liabilities and equity

$ 652.3

$ 656.6

$ 656.3

-1%

-1%

The balance sheet didn't move much with assets decreasing 1% in total while liabilities and equity also decreased by 1%.

Conclusion

The company reported earnings which were 12% lower than a year before on slightly less revenue while the share price was up 1.14% since the last earnings call excluding dividends. The share count has decreased by 3% for the entire year. I don't like that both revenue and earnings declined on a yearly basis. The results were bad to me, but investors seem to think they were good as the stock popped 1.68% after reporting while the S&P500 increased in value by 0.14%. That being said, I think the stock is inexpensively valued. The reason the stock was up after earnings was because the company beat analysts' expectations. I like to see year-over-year increase and with these results the stock is going to be on my team, but I'm not considering it for any purchases right now.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long GE, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: General Electric Earnings Were Weak In My Opinion