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GE rises most in year with equipment order increases, including at Fort Worth locomotive unit

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Richard Clough (c) 2014, Bloomberg News. NEW YORK — General Electric Co. beat analysts’ profit estimates in the third quarter as Chief Executive Officer Jeffrey Immelt squeezed more costs from the manufacturing units.

Operating margin in the industrial business, a gauge closely watched by investors, expanded by 0.9 percentage point in the third quarter, GE said Friday. Adjusted profit from continuing operations was 38 cents a share, exceeding the 37- cent average among 11 analysts surveyed by Bloomberg.

Immelt built on efforts to shrink GE’s finance arm and re- emphasize manufacturing with an agreement last month to sell the historic home-appliances business to Electrolux for $3.3 billion. In July, Fairfield, Connecticut-based GE held an initial public offering for its North American consumer-lending operations, known as Synchrony Financial.

“His larger moves are already paying off,” said Michael Holland, who oversees more than $4 billion including GE shares as chairman of Holland & Co. in New York. “He’s spent the better part of the past decade doing major things for which he’s received relatively little applause. At this point, the applause is coming first from the earnings and then from the stock market.”

“We are seeing solid pockets of underlying growth in many of our markets,” Immelt said on a conference call. GE increased equipment orders 31 percent, including locomotive and jet-engine deals that boosted the transportation and aviation divisions.

New technologies drove the 31 percent increase in equipment orders in the quarter; these included orders for more than 1,000 Tier 4-compliant locomotives, 4 HA gas turbines, and launch orders for the GE9X aircraft engine. Services orders grew 10 percent in the quarter. As part of GE’s strategy to grow its services business, the company also announced in October the opening of its Predix Industrial Internet platform to all users starting in 2015, and that GE Predictivity solutions revenues are expected to exceed $1 billion in 2014.

Quarterly revenue increased 1 percent to $36.2 billion, trailing estimates of $36.9 billion. Adjusted profit from continuing operations rose 3 percent to $3.8 billion.

Sales climbed 10 percent in the transportation unit as GE won orders for more than 1,000 of its latest-generation low- emission locomotives. The aviation division, which is taking orders for its new GE9X engine, boosted revenue 6 percent.

“GE’s third-quarter earnings report appears positive, with the standout components being very robust margin gains despite slightly lower-than-expected industrial sales and exceptional year-over-year industrial order growth,” Nicholas Heymann, an analyst at William Blair & Co. in New York, said in a note.

Heymann said it was “one of the strongest order-growth quarters in several years.”

The fourth quarter will be “very strong,” Chief Financial Officer Jeff Bornstein said on the call. While GE doesn’t give forecasts, it provides a so-called operating framework on which analysts base their profit estimates. Immelt said GE is “on track” to meet those expectations for 2014.

GE said it has eliminated $674 million in costs this year, positioning the company for $1 billion in expense reductions for all of 2014. For more than a year, Immelt has promoted GE’s internal simplification initiative, a cost-cutting effort that has involved restructuring the energy business, removing layers of bureaucracy and trimming the finance unit.

“GE continues to make good progress with its simplification goals,” the company said in a statement.

Immelt has been disposing of some GE Capital assets while bulking up those that support industrial operations, a strategy that includes steps such as this week’s accord to buy helicopter lessor Milestone Aviation Group. GE sells helicopter engines and equipment for the offshore energy industry, which relies on rotary-wing aircraft.

The world’s largest maker of jet engines and locomotives was imperiled when credit dried up during the 2008-09 financial crisis, squeezing GE Capital. Immelt has said he wants to focus on industrial businesses and reduce earnings from financial services to 25 percent of profits from 47 percent in 2013.

Counting discontinued operations, GE’s net income rose 11 percent to $3.54 billion, or 35 cents a share.

Robert Francis
Robert is a Fort Worth native and longtime editor of the Fort Worth Business Press. He is a former president of the local Society of Professional Journalists and was a freelancer for a variety of newspapers, weeklies and magazines, including American Way, BrandWeek and InformatonWeek. A graduate of TCU, Robert has held a variety of writing and editing positions at publications such as the Grand Prairie Daily News and InfoWorld. He is also a musician and playwright.

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