Europe’s woes fail to halt GE’s progress

Strong demand for aero-engines and locomotives boosts earnings

General Electric, the largest US industrial group by market capitalisation, has reported a 14 per cent rise in post-tax profits for the first quarter, despite a worse than expected slump in its European business.

Group earnings per share from continuing operations of $0.35, up 17 per cent, were in line with analysts’ expectations.

The earnings benefited from a $2bn pre-tax profit from the $18.1bn sale of GE’s remaining 49 per cent stake in NBCUniversal and associated property.

GE’s industrial operations were weaker than expected, however, with lower margins, and the shares were down 4 per cent at $21.75 at the close in New York.

The company said demand in the US and in emerging economies had been in line with expectations, but Europe had continued to deteriorate as its economic crisis deepened, with revenues at the industrial business falling 17 per cent.

The power and water division was particularly badly hit.

Jeff Immelt, GE’s chief executive, said: “While we anticipated significantly fewer wind and gas turbine shipments, we saw additional pressure in European power and water services.”

Revenues from power and water dropped 26 per cent, and profits fell 39 per cent to $719m. The division was also hit by a 57 per cent drop in revenues from wind turbines, as a result of a gap in orders created by uncertainty over whether the US production tax credit for wind power would expire at the end of last year.

Overall, group post-tax profits from continuing operations were up 14 per cent at $3.51bn, boosted by strong performances from aero-engines, where profits rose 9 per cent to $936m, and transport equipment such as locomotives, as well as the NBCU sale.

GE Capital, the financial services division, also reported a 9 per cent rise in post-tax profits from continuing operations to $1.94bn, helped by a lower tax charge and a $690m profit from selling property, up from just $56m in the equivalent period of 2012.

The group tax rate dropped to 12 per cent, from 17 per cent in the equivalent period of 2012.

Revenues of $35bn, unchanged on last year, were slightly stronger than expected.

Mr Immelt said he expected that the first half of the year would be the toughest period for the power and water division, in part because of comparisons with last year when US demand for GE’s wind turbines boomed, as developers rushed to place orders before the feared expiration of the tax credit. He said he expected the division to return to growth in the second half of the year.

He also reaffirmed the company’s plan to raise margins at its industrial businesses by 0.7 percentage points, and said it had already taken out $200m of the planned $1bn of cost reduction it planned this year.

Total orders for the industrial business were $23.8bn in the first quarter, up 3 per cent, and equipment orders were 1.3 times billings during the period.

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