GE posts strong Q3 order backlog, profit margins; shares rise

Reuters

By Lewis Krauskopf and Ernest Scheyder

Oct 18 (Reuters) - General Electric Co on Fridayposted a record backlog of orders that the company saidpositioned it well for 2014, lifting shares and overshadowing adecline in quarterly profit and revenue.

Chairman and Chief Executive Jeff Immelt sounded anoptimistic tone to end a week of economic uncertainty over thedebt ceiling debate in Washington, saying the conglomerate'sresults were "very strong in an improving global businessenvironment."

Its backlog for everything from jet engines to locomotivesto turbines jumped nearly 13 percent compared with the year-agoquarter.

Earnings increased at six of GE's seven industrialbusinesses, and the company said it was on track to achieve itstarget for expanding profit margins for the year.

GE shares rose 4 percent to $25.68 in afternoon trading,touching their highest point since the 2008 financial crisis.

"It's slow but steady progress at GE, and that's a goodthing," said Tim Ghriskey, chief investment officer at SolarisAsset Management, which owns GE shares.

Orders grew 18 percent in the United States and 17 percentin Europe, helped by bookings for products such as wind turbinesand oil pumps.

"Given the backdrop, I think infrastructure as a segment hasbeen pretty strong in both U.S. and Europe," Chief FinancialOfficer Jeff Bornstein said in an interview.

China orders also rose 17 percent, with bookings reflecting"what the Chinese have focused on in terms of building out theireconomy," Bornstein said, including renewable energy, movingfrom coal to gas, and upgrading hospitals with medicaldiagnostic equipment.

GE is benefiting from global economic themes such as greaterair transport and need for electrical generation, but it wasunclear the extent to which other companies' results would showsigns of the world economy heating up.

"I think you're going to see a really mixed bag of whatpeople's experiences are going to be in the third quarter,"Bornstein said.

NET INCOME

GE's net income fell to $3.19 billion, or 31 cents pershare, in the third quarter, from $3.49 billion, or 33 cents pershare, a year earlier.

Excluding one-time items, earnings of 36 cents per sharetopped the average estimate of analysts by a penny, according toThomson Reuters I/B/E/S.

Revenue fell 1.5 percent to $35.7 billion. Analysts lookedfor nearly $36 billion.

Revenue was weighed down by its GE Capital finance arm,which the company is shrinking, and a $132 million toll from thenegative impact of foreign currency translation.

Among GE's seven industrial segments, its oil and gas andaviation lines posted revenue increases of 18 percent and 12percent, respectively, offsetting a 10 percent decline in itspower and water unit that makes a variety of turbines.

Still, the power and water business, which has been a dragon results, recorded a 9 percent gain in earnings and performedbetter than several analysts expected.

"The turbine business is looking up," Ghriskey said. "Itcertainly has taken a hit. But that should improve next quarterand into 2014."

The company's accumulated backlog of service and equipmentorders rose to $229 billion, up $6 billion from the secondquarter. Equipment orders for its aviation division nearlydoubled in the quarter, while transportation equipment ordersjumped 65 percent.

GE pointed to a roughly $600 million order in the quarter toprovide turbomachinery equipment to Russia's Yamal liquefiednatural gas project and an order from Air Asia for 528 engines.

Last month, GE unveiled a $1.9 billion agreement withAlgeria's Songelaz to supply power generation equipment, butthat order will not be booked until starting in the fourthquarter.

GE said it was on track to reach its target of expandingoperating profit margin for its industrial businesses by 0.7 ofa percentage point - to 15.8 percent this year from 15.1 percentin 2012. In the third quarter, the profit margin improved by 1.2of a percentage point from a year ago.

"Industrial margins, which is really an earnings driver,were much stronger than expected," said Jack Degan, chiefinvestment officer at Harbor Advisory Corp, which owns GEshares.

The company said it had already reached its goal of reducing costs in its industrial businesses by about $1 billion thisyear.

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