General Electric Quarterly Earnings Analysis: By the Numbers

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General Electric (GE) just reported its preliminary financial results for the quarter that ended Sept. 30., based upon which we provide a unique corporate earnings release based analysis of its performance. Our analysis focuses on the company's performance for the same quarterly period on a year-on-year basis (unless stated otherwise).

This earnings release follows the earnings announcements from the following peers of General Electric: Honeywell International (HON) and Danaher (DHR).

  • Summary numbers: Revenues of $35.916 billion, Net Earnings of $3.480 billion and EPS of $0.35. Performance focus on earnings: same period year-on-year change in earnings of 6.32% better than change in revenues of 1.13%
  • Gross margins now 21.25% from 52.47% compared to the same period last year, EBITDA margins now 16.74% from 23.80%
  • Earnings growth from operating margin improvements as well as from unusual items

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):
2013-09-30 2013-12-31 2014-03-31 2014-06-30 2014-09-30
Revenues 35514.00 39353.00 33872.00 36049.00 35916.00
Revenue Growth (Qtr YOY) -0.03 2.21 1.33 3.09 1.13
Earnings 3273.00 5013.00 2987.00 3586.00 3480.00
Earnings Growth (Qtr YOY) -5.24 16.15 -17.85 10.17 6.32
Net Margin 9.22 12.74 8.82 9.95 9.69
EPS 0.32 0.46 0.29 0.35 0.35
Return on Equity 10.15 15.09 8.70 10.32 9.82
Return on Assets 1.98 3.04 1.83 2.20 2.14
Revenue Growth Versus Earnings Growth

Companies sometimes focus on growing their top-line (Sales or Revenues) more than their bottom-line i.e. Earnings or Net Income. Investors should look at revenue growth to understand a company's ability to grow its market share, and earnings growth to look at the company's ability to generate returns. Comparing revenue growth to earnings growth helps understand a couple of items: (1) A company's focus on gaining market share vs. generating profits and (2) How additive or dilutive the revenue performance has been to earnings.

GE's year-on-year change in top line compared to the same period last year of 1.13% trailed its change in earnings which was 6.32%. The company's performance this period suggests an effort to boost the bottom-line earnings. While this is good to a point, the fact that the company's top-line performance is less than average among the declared results thus far in its sector does not bode well from a long-term market share perspective. Also, for comparison purposes, revenues changed by -0.37% and earnings by -2.96% compared to the immediate last quarter.
Earnings Growth Analysis

The company's earnings have gone up year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations - gross and ebitda margins are currently at 21.25% and 16.74% respectively and 52.47% and 23.80% for the same period last year. For comparison, gross margins were 51.87% and EBITDA margins 23.88% in the immediate last quarter.
Unusual Items

The company's earnings growth has also been influenced by the following factors: (1) Improvements in EBIT margins from 16.54% to 16.74% and (2) unusual items. The company's pretax margins are now 10.90% compared to 10.16% for the same period last year.
EPS Growth Versus Earnings Growth

GE's year-on-year change in Earnings per Share (EPS) of 8.97% is better than its change in earnings of 6.32%. In addition, this change in earnings is less than the peer average among the declared results thus far in its peer group suggesting that the company is losing ground in generating profits in this group.
Supporting Data

The table below shows the preliminary results along with the recent trend for revenues, net income and other relevant metrics:
2013-09-30 2013-12-31 2014-03-31 2014-06-30 2014-09-30
Revenues 35514.00 39353.00 33872.00 36049.00 35916.00
Revenue Growth (Qtr YOY) -0.03 2.21 1.33 3.09 1.13
Peer Average Revenue Growth (Qtr YOY) 3.27 5.86 3.83 4.77 4.31
Earnings 3273.00 5013.00 2987.00 3586.00 3480.00
Earnings Growth (Qtr YOY) -5.24 16.15 -17.85 10.17 6.32
Peer Average Earnings Growth (Qtr YOY) 4.21 25.21 -16.22 9.66 14.00
Operating Cash Flow 5231.00 11417.00 4961.00 5249.00 N/A
Peer Average Operating Cash Flow 1070.00 1668.00 688.00 1341.00 1233.00
Operating Cash Flow Growth (Qtr YOY) -18.56 -3.51 -23.73 -22.60 N/A
Peer Average Operating Cash Flow Growth (Qtr YOY) 10.92 6.51 5.10 6.23 -10.70
Gross Margin 52.47 51.03 53.27 51.87 21.25
Peer Average Gross Margin 52.47 51.03 53.27 51.87 31.73
EBITDA Margin 23.80 22.26 24.82 23.88 16.74
Peer Average EBITDA Margin 22.22 21.23 21.74 22.66 17.78
Net Margin 9.22 12.74 8.82 9.95 9.69
Peer Average Net Margin 10.26 12.74 10.50 10.72 11.55
Working Capital Days 656.38 576.54 654.65 608.46 610.60
Peer Average Working Capital Days 76.43 71.97 94.52 93.51 95.30
EPS 0.32 0.46 0.29 0.35 0.35
Peer Average EPS 0.84 1.11 0.81 0.95 0.95
EPS Growth (Qtr YOY) 1.61 13.20 -15.35 12.60 8.97
Peer Average EPS Growth (Qtr YOY) 3.33 24.72 -15.35 9.20 13.10
Return on Equity 10.15 15.09 8.70 10.32 9.82
Peer Average Return on Equity 11.44 15.09 10.20 11.56 11.44
Return on Assets 1.98 3.04 1.83 2.20 2.14
Peer Average Return on Assets 7.15 8.43 6.65 7.65 7.64
Company Profile

General Electric Co. is a technology and financial services company that develops and manufactures products for the generation, transmission, distribution, control and utilization of electricity. Its products and services include aircraft engines, power generation, water processing, security technology, medical imaging, business and consumer financing, media content and industrial products. The company operates through eight segments: Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Home & Business Solutions and GE Capital. The Power & Water segment serves power generation, industrial, government and other customers worldwide with products and services related to energy production. The Oil & Gas segment supplies mission critical equipment for the global oil and gas industry, used in applications spanning the entire value chain from drilling and completion through production, liquefied natural gas and pipeline compression, pipeline inspection, and downstream processing in refineries and petrochemical plants. The Energy Management segment provides integrated electrical products and systems used to distribute, protect and control energy and equipment. It manufacture electrical distribution and control products, lighting and power panels, switchgear and circuit breakers that are used to distribute and manage power in a variety of residential, commercial, consumer and industrial applications. The Aviation segment produces, sells and services jet engines, turboprop and turbo shaft engines, and related replacement parts for use in military and commercial aircraft. Its military engines are used in a wide variety of aircraft including fighters, bombers, tankers, helicopters and surveillance aircraft and as well as marine applications. The Healthcare segment provides healthcare technologies such as medical imaging and information technologies, medical diagnostics, patient monitoring systems, disease research, drug discovery and biopharmaceutical manufacturing technologies. This segment predicts and detects disease earlier; monitoring its progress and informing physicians, and helping physicians tailor treatment for patients. The Transportation segment provides technology solutions for customers in various industries, which include railroad, transit, mining, oil and gas, power generation and marine. It also provides portfolio of service offerings designed to improve fleet efficiency and reduce operating expenses, including repair services, locomotive enhancements, modernizations, and information-based services like remote monitoring and diagnostics. The Home & Business Solutions invests in the development of differentiated products such as energy efficient solutions for both consumers and businesses. Its products include major appliances and subsets of lighting products are primarily directed to consumer applications, while other lighting products and automation solutions are directed towards commercial and industrial applications. The GE Capital segment's services include commercial loans and leases, fleet management, financial programs, home loans, credit cards, personal loans and other financial services. It provides its services for all sizes of businesses worldwide. The company was founded by Thomas A. Edison in 1878 and is headquartered in Fairfield, Connecticut.

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