General Electric’s Earnings Reflect a Transformative Strategy

Workers inspect a gas turbine at General Electric's plant in Belfort, France. Revenue from G.E.'s industrial businesses rose 7 percent last quarter. By STEVE LOHR July 18, 2014

General Electric reported second-quarter results on Friday that reflected its steady return to its industrial roots, and the giant conglomerate is looking to accelerate the shift.

G.E. is the largest industrial company in the United States, with products including jet engines, power generators, oil field machinery and medical imaging equipment. Revenue from its industrial businesses rose 7 percent, while revenue at its sizable finance unit, GE Capital, declined 6 percent.

The reduction of the finance side of the G.E. portfolio is by design, as the company has steadily trimmed its dependence on GE Capital since the financial crisis hit in 2008.

G.E. also announced on Friday that it intended to spin out its North American consumer-finance business, Synchrony Financial, in an initial public offering in late July. G.E. has said it will sell a stake of up to 20 percent in the business, which analysts have valued at roughly $20 billion.

The further move away from finance comes only a month after G.E. agreed to buy the energy businesses of Alstom, a French industrial corporation, for $13.5 billion. G.E. says it is on target to reduce the share of its earnings that come from GE Capital to 25 percent by 2016. Before the financial crisis, the finance unit routinely accounted for more than half its earnings.

"G.E. is right in the middle of making major changes, remaking its portfolio," said Steven Winoker, an analyst at Bernstein Research.

But the second-quarter results also showed that G.E. was willing to sacrifice some revenue growth as it trimmed its finance business.

Total revenue across the corporation rose 3 percent to $36.2 billion, up from $35.1 billion in the year-earlier quarter. But the total revenue figure was slightly below analysts' estimate of $36.3 billion.

G.E. reported net income of $3.5 billion, a 13 percent increase from the year-earlier quarter. The company's operating earnings per share rose 8 percent to 39 cents a share, which matched the average Wall Street forecast, as compiled by Thomson Reuters. The percentage gain in net income was greater than in earnings per share mainly because G.E. raised its dividend payout by 3 cents a share, or 16 percent.

In a statement, Jeffrey R. Immelt, G.E.'s chief executive, said the company had delivered "a good performance" in the quarter and for the first half of the year, singling out the double-digit profit growth in the industrial side of the business. "The environment continues to be generally positive," he added.

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