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Industrial and financial conglomerate General Electric (GE) reported better than expected earnings late last week. The firm earned $0.38 per share during the second quarter, a penny higher than what consensus had expected and an increase of 12% year-over-year. Revenue of $36.5 billion represented a 2% increase year-over-year, which was slightly below consensus expectations. Not surprisingly, revenue was negatively impacted by foreign exchange rates by $900 million, so we consider the top-line revenue growth slightly stronger than expected. We thought GE posted a solid quarter. Our fair value estimate for the industrial conglomerate remains unchanged. Please click here for GE's valuation report.

GE's industrial segment performed well, with revenues in the segment growing 9% to $25 billion. The transportation division experienced robust growth, increasing 27% to $1.5 billion in sales. Management specifically pointed to 28% growth in North American locomotive orders, underscoring some of the strength Union Pacific (UNP) displayed earlier this week. On other hand, revenues in GE's Aviation segment grew only 3% to $4.9 billion. Still, we remain quite bullish on aerospace demand and prefer smaller firms in the supply chain that are poised for stronger expansion.

Operating profit in GE's industrial segment grew 7% year-over-year, to $3.7 billion. The firm's backlog now stands at a record $204 billion, so we think the back half of 2012 will be strong. The firm remains committed to expanding operating profit, as it also announced it will be splitting its energy business into three separate entities to increase decision-making speed, while reducing business layers (and potentially overhead). The energy infrastructure business grew 15% year-over-year, to just under $12 billion.

Revenues at GE Capital declined 8% year-over-year to $11.5 billion, but the segment's profit increased 31% year-over-year, to $2.1 billion. GE Capital also returned to paying a dividend to the parent company. This amounted to $3 billion during the second quarter. We previously noted GE Capital's desire to de-leverage its balance sheet. Though such a move will likely improve earnings quality in the segment, it will lead to declining revenue contributions.

Overall, we thought GE's industrial segment results were strong, especially given fears of a global economic contraction. We suspect the transportation and energy segments will remain particularly resilient. Rail companies like Union Pacific are continually looking to improve fuel efficiency, and GE currently provides railroads with some of the most fuel efficient trains and engines. We're also big fans of aerospace demand and expect commercial aircraft deliveries to continue to expand in coming years.

Nevertheless, we think shares of GE are fairly valued at current levels. Though the Valuentum Dividend Cushion (our proprietary dividend-cut predictor) indicates the dividend is currently safe, we're not expecting too much growth in it in coming years.

Source: GE Builds Its Backlog And Posts A Strong Second Quarter