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GE profit beats estimates as jet engines buoy record backlog

By Tim Catts
Bloomberg News

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General Electric Co.’s second-quarter profit beat analysts’ estimates as demand for jet engines and oil-and-gas drilling equipment drove the order backlog to a record.

Profit margins at the industrial units grew and are poised to keep expanding, Chief Executive Officer Jeffrey Immelt said Friday in a news release. He is investing in the aviation and oil and gas divisions, through purchases including Lufkin Industries Inc. and by opening factories, as he seeks to boost sales and profit from manufacturing and service operations.

“You’re seeing a little faster growth in those businesses, and that’s going to be a main focus on the industrial side and across the whole company,” Christian Mayes, an Edward Jones & Co. analyst in St. Louis who has a hold rating on GE, said in a telephone interview. “Those are areas that have the most potential and where they’re spending money on acquisitions.”

Adjusted profit from continuing operations of 36 cents a share exceeded the 35-cent average of 13 analysts’ projections compiled by Bloomberg. Operating earnings of $3.7 billion fell 8 percent from a year earlier, the Fairfield, Conn., company said.

Aviation sales climbed 9 percent, as did revenue for the oil and gas segment. GE Capital, the finance unit, reported sales of $11 billion, 3 percent less than a year earlier. The industrial backlog rose 3.2 percent to $223 billion.

Total revenue declined 3.5 percent to $35.1 billion, GE said, trailing the $35.6 billion average estimate in a Bloomberg survey of 10 analysts.

The profit margin at the industrial businesses grew 50 basis points, or 0.5 percentage point, in the quarter, GE said. Immelt has pledged to expand margins by 70 basis points this year.

Operating earnings at the units grew 2 percent from the same period in 2012 to $3.8 billion.

“We expect margin expansion to continue and segment profits to grow in the second half of the year,” Immelt said in the news release.

GE agreed to buy Lufkin Industries, a manufacturer of oil-field equipment, in April for about $3.3 billion. Its $4.3 billion acquisition of Avio SpA, an aerospace-parts maker that counts GE among its biggest customers, is scheduled to close in the third quarter, according to the release.

Earnings per share were reduced by 1 cent after GE wrote down the value of a $300 million investment in Brazilian billionaire Eike Batista’s EBX Group that it announced in May 2012, Immelt said.

Counting pension costs and discontinued businesses, GE’s net income rose 1 percent to $3.13 billion, or 30 cents a share, from $3.11 billion, or 29 cents, a year earlier.


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