General Electric Posts Strong Q4, Sees Better 2010

Is the worst over for the global economy? If bellwether General Electric's (GE) Q4 earnings report and 2010 outlook is any indication, we may have turned the corner.

Industrial giant GE earned 28 cents per share in Q4, two cents above the First Call EPS estimate of 26 cents. The company said its business model is performing well, amid what it believes is an improving global business environment.GE's Q4 revenue totaled $41.4 billion versus the First Call EPS estimate of $40.2 billion. Further, GE's order backlog rose to a record $175 billion at the end of Q4, up about $1 billion from Q3.

Conditions in GE's Capital Finance unit appear to be stabilizing, as the unit earned $2.3 billion in 2009, with the company saying it is "ahead of plan on key metrics." Equally significant, GE said "consumer delinquencies are stabilizing."

For the full-year 2009, GE earned $1.03 per share on revenue of $157.0B versus the First Call consensus estimates of $1.00 and $155.1 billion, respectively.

GE Sees Better 2010

"GE's environment has improved and we saw some encouraging signs at year-end," GE Chairman and CEO Jeff Immelt said, in a statement.

In the Q4 conference call, Immelt added, "The world we look at has improved, and we're looking for a better 2010." He added that GE is performing well concerning its four operational objectives: 1) keeping GE Capital Finance safe and secure, 2) orders, 3) margins, and 4) cash -- and he expects more progress in 2010.

A breakdown of each: Concerning GE Capital Finance, Immelt said CF "is ahead of plan on all metrics, with commercial paper below $50 billion." On orders, he said, "We're seeing a pretty good bounce-back in equipment. Service orders were very strong." Regarding margins, Immelt said, "We're seeing very good margin accretion. The dynamics of margin enhancement really are working," aided by streamlined operations, and disciplined cost containment. Finally, on cash, Immelt added that the company's cash position -- $72 billion of consolidated cash on the balance sheet -- "is strong and will continue to increase throughout 2010."

Immelt added that GE Capital Finance is "executing well in a difficult environment." Capital Finance earned $300 million in Q4 and $2.3 billion for the year, with every segment profitable except commercial real estate. The company added that it has raised about $4.4 billion in 2010 that will go towards its 2011 plan with Capital Finance's reserves increasing by $700 million to $8.1 billion.

"Moreover, due to the company's strong cash position, we will have an opportunity to keep GE secure and create long-term shareholder value," Immelt said.

Indeed, key Q4 metrics suggest better quarters ahead for shareholders of the world's largest maker of electric power generators, jet engines, locomotives and medical imaging equipment: Q4 infrastructure orders increased by $3.7 billion from Q3 to $22.1 billion. Total company backlog of equipment and services edged higher to a record $175 billion. Service orders surged 14%, its health care business experienced solid orders growth, and cash from industrial operations totaled $5.1 billion for Q4 and $16.6 billion for 2009. Industrial margins also rose 40 basis points to 17.7% in Q4, compared to Q4 2008.

Q4 Analysis

Overall, a good Q4 performance for GE, with encouraging signs for 2010, with the key take-a-ways being a solid increase in infrastructure orders, impressive order growth in its service and health care units, and signs of stabilization in GE's Capital Finance unit. To be sure, given sector uncertainties regarding commercial real estate, the Capital Finance unit will likely continue to represent the major unknown regarding GE's corporate performance, moving forward. Still, the company's solid cash position, and equally significant, the increase in business driven by the global economic recovery, point to improving revenue and earnings for GE in 2010.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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