General Electric Company (GE), incorporated in 1892, is a diversified technology and financial services company. The products and services of the company vary from power generation, aircraft engines, water processing, business and consumer financing and industrial products. It serves customers in more than 100 countries.
Before the financial crisis of 2008, GE capital contributed almost half of total revenues for the conglomerate. However, during the financial crisis GE capital became the Achilles' heel of the company, and it decided to shed some of GE capital's business. The financial crisis offered the company an opportunity to rethink its strategy, and focus again on its core industrial business. As a result, the conglomerate has been able to get back on track, and the industrial arm is again driving the growth. However, the industrial arm remains sensitive to the economic cycle and may experience small bumps along the way.
General Electric has long and illustrious history of dividends, which has seen consistent increase on an annual basis. However, during the financial crisis of 2008, the firm had to cut its dividends due to massive losses from GE capital. The financial crisis hit the conglomerate bad, as almost 50% of the profits came from its financial services segment. In addition, slowing global economy hit the industrial arm and the firm suffered heavily during the previous three years. Nonetheless, the company has been able to reduce the risk at GE Capital, and the segment has started returning dividends to the parent company. At the moment, General Electric pays an annual dividend of $.68 and a dividend yield of 3.02%. In 2009, the firm decided to cut its quarterly dividends from $.31 to $.10. However, due to recovering business, the stock has increased the quarterly dividends to $.17.
Over the past three years, GE segment revenues have shown an increasing trend. However, total revenues for the firm have been falling due to a decrease in revenues from GE capital. Nevertheless, Industrial segment profit has remained stable in the previous three years at around $14 billion. On the other hand, GE capital revenues experienced a massive fall of $17 billion in 2009. Even though, the revenues in different segments have shown some variability the earnings have been increasing in the previous three years. At the end of 2011, the conglomerate generated earnings from continuing operations of more than $14 billion. Earnings at the end of 2011 represent almost 28% increase from the previous year.
In its most recent earnings announcement, the firm reported a 2.5% increase in its reported profit. Moreover, the firm announced that it will break up energy division into three separate divisions to increase cost savings. The firm expects to generate double digit earnings growth during 2012. In addition, two other industrial giants Textron Inc (TXT) and Honeywell International Inc (HON) announced stronger than expected quarterly results. These announcements indicate that the industrial firms are finding ways to increase revenues in the slow global economy.
General Electric is a cash generating machine, cash flows from operations stood at more than $33 billion at the end of 2011. This represents an increase of almost 37.5% from the level of 2009. However, the firm has been spending massive amounts in capital expenditures. During the past year, the company spent more than $12 billion in capital expenditures. An important item in the cash flows statement of General Electric is the decrease in GE Capital receivables and cash inflows from business dispositions. A closer look at the cash flows indicates how well the company has implemented its strategy and shed the GE Capital losses. Due to this timely action, GE Capital has turned into an important segment once again instead of taking the company down.
During the past three years, the firm has spent more than $30 billion in capital expenditures. As a result, free cash flows of the firm have shown a fluctuating trend. Due to a fall in cash flows from operations and increase in capital expenditures, free cash flows came down to $20.7 billion in 2011. At the end of 2010, free cash flows for GE stood at $26 billion. However, I expect General Electric to report strong cash flows due to improving operations. At the end of the second quarter, the firm reported cash flows from operations of more than $14 billion.
As of June 31, 2012, the company's total debt stood at $386.6 billion which represented a debt to equity ratio of 1.9. Out of these consolidated debt levels, $112.6 billion are in the long term corporate bonds. At the moment, GE corporate bonds are rated AA-. However, most of the long term debt originates from the GE Capital services. General Electric has senior notes worth $8.9 billion maturing between 2013 and 2017, and another $429 million payable to banks and other parties. On the other hand, GECS have senior unsecured notes of more than $210 billion, which have maturities between 2013 and 2055.
GECC issued $35 billion and $53 billion of senior, unsecured debt at December 31, 2011 and 2010, respectively. These two debt offerings were guaranteed by the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program. GECS also have subordinate notes and debentures of $24 billion. However, due to a decrease in GECS operations and business, the total amount of debt for GE is coming down. At the end of 2010, total long term borrowings stood at $293 billion which came down to $243 billion by the end of 2011.
General Electric is the sixth largest company in the world based on revenues. The firm faced some troubles during the recent economic slowdown and financial meltdown. However, the conglomerate is back on track and the firm is again generating healthy amounts of profits and cash flows. During the past three years, the firm has increased the dividends on a consistent basis. I believe due to the improving operations, and cash flows, the firm will again increase its quarterly dividends soon. On the other hand, the stock has started climbing up and touched its 52-week high limit recently. Investors are showing confidence in the stock after the management changed its focus back to the core business. The company can provide healthy capital gains along with a juicy dividend in the near future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.