GE Delivers Strong Industrial Earnings and Order Growth

 General Electric (GE) started 2012 off on a strong note, producing first-quarter operating earnings of $0.34 per share, up 17% from the prior year after excluding one-time 2011 items. 

The company increased industrial revenue 14%, with the energy segments as well as aviation and transportation growing double digits from last year. In addition to the strong top-line performance, GE's orders grew 20%, which we think reflects an improvement in end markets and healthy prospects for the next several quarters.

From our perspective, the quarter's performance stands out because the earnings growth was driven by the industrial side of the business, with GE Capital remaining essentially flat. Earnings growth is coming from areas where management has made explicit internal and external investments which are finally starting to bear fruit. While GE Capital's earnings were stagnant in the period at $1.8 billion, capitalization ratios remained relatively sound and we're still optimistic about the prospects of a meaningful dividend from GE Capital resuming within 2012. Additionally, GE's real estate business recorded a profit for the first time since 2008, a meaningful sign that the portfolio has recovered from the financial crisis.

We expect GE's industrial operations to be the focal point for growth in the portfolio as GE Capital takes more of a backseat. While the recession in Europe will continue to be a drag on overall growth, we think the growth in the United States should more than offset that. Our long-term thesis for the company remains intact, and we maintain our fair value estimate.

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