Another Strong Performance for GE

 General Electric (GE) delivered another strong performance in its first quarter with earnings of $0.33 per share, ahead of our expectations. Management increased the dividend for the third time in nine months, taking the annualized dividend payout to $0.60 per share. As we have expected for several years, we think this quarter's performance underscores the company's strategy to return to the core infrastructure businesses.

Industrial revenue increased 8% from the same quarter last year, as internal revenue increased 5%. All reporting segments delivered growth in the quarter, a sign that GE's portfolio has finally lapped the recovery. We are particularly impressed by the firm's strong order growth of 11%, which we think bodes well for future top-line growth. While the energy business has cooled off from prerecession levels, we are encouraged by the 18% growth in transportation and 9.5% growth in health care.

Operating margins fell to 14.4% from 15.5% in the year-ago period. We think the decline is related to acquisition costs recognized in the first quarter and the addition of new businesses with lower-margin profiles than those in the existing portfolio. We will listen for management commentary on the issue, though, as we model 15.5% industrial operating margin as our normalized assumption.

GE Capital executed well in the quarter, earning $1.8 billion aftertax. Provisions fell to $1.2 billion versus $2.3 billion in the prior year. GE Capital Aviation Services and the consumer business were the only businesses to report meaningful growth in the quarter as management continues to shrink the size of the portfolio. We will probably adjust our outlook for GE Capital, given the better-than-expected decline in provisions.

The dividend increase announcement took us by surprise, as we expected the company to hold off on further dividend action until much later in the year. We view the move as a sign of confidence in the business from management and the board, which is critical following the divestiture of NBC Universal. Following the acquisition of Converteam in the quarter, we expect the company's torrid acquisition pace to cool, though we still expect GE to repurchase the Berkshire BRK.B preferred shares and announce a broader share-repurchase program. This quarter's strong performance punctuates our long-term thesis for GE. We maintain our fair value estimate.