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Industrial Focus Drives Growth for GE

Efforts to increase service revenue pay off.


 General Electric (GE) reported fourth-quarter operating earnings of $0.53 per share, reflecting 20% earnings growth versus the prior year. Organic revenue improved 5% in the quarter, with order growth continuing the positive trend from the third quarter. The company continues to deliver solid operating margin performance, with industrial margins improving 1 percentage point year over year to 18.3%. The quarter's performance was slightly ahead of our expectations but not enough to amount to a material change in our $27 fair value estimate. Our Wide Economic Moat Rating is intact.

Considering that the oil and gas segment is still less than 20% of industrial revenue, we were a bit surprised by the strong contribution to earnings growth in the quarter. Industrials were also aided by strong earnings growth and margin expansion in power and water as well as the aviation business. As of the end of the fourth quarter, the firm's backlog stands at $244 billion, which is more than double annual sales. Just under 75% of the current backlog is related to long-term service contracts, which adds to near-term visibility.

Daniel Holland does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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