There's More to GE's Earnings Than Meets the Eye

It's another quarter in the books for General Electric (NYS: GE) , the Dow Jones Industrial Average's (Index: ^DJI) oldest member, and based on its third-quarter results Wall Street didn't seem all too thrilled, sending the stock down 2% on Friday.

Before the credit crisis in 2008, GE was practically unstoppable. If you had asked me five years ago I'd have placed the company next to death and taxes as possibly the only other thing on Earth you could count on. Well, the credit crisis in 2008 proved that theory of mine dead wrong, and GE's crippled financial arm showed that this conglomerate is just as fallible as any other company.

But Wall Street may have overlooked some key points to last week's earnings report, which wasn't nearly as bad as GE's 2% drop on Friday would indicate.

For starters, GE's bread-and-butter segments, energy and GE capital, both appear on track to contribute solid results for the company. GE relies heavily on its energy innovations and its financial arm to deliver to its bottom line:


Source: PR Newswire, all figures in billions of U.S. dollars.

With revenue for its lending division flat year-over-year, you might anticipate that growth there has stalled -- but it's actually quite the opposite. Major corporations are taking advantage of historically low lending rates, which has boosted GE's lending business and helped crank up third-quarter profits by 79% because of more beneficial net interest margin spreads. The lending segment's tier-one capital ratio is also up to 11%, signaling that the company is well-capitalized. This is important because just a few years ago, this same lending segment cost the company upwards of $1 billion in writedowns.

GE's energy infrastructure segment experienced an impressive 30% jump in revenue over the year-ago period, with the strongest growth coming from the BRIC countries, as well as Canada, Mexico, and the Middle East. This marked the third consecutive quarter of at least 9% revenue growth for this division. Although energy and infrastructure profits fell by 9% because of lower wind margins, GE appears significantly more diversified than its solar counterparts like First Solar (NAS: FSLR) and SunPower (NAS: SPWRA) (NAS: SPWRB) , which have been crushed by falling prices for solar panels. As solar companies struggle to stay afloat, GE's alternative energies are charging ahead and putting profits in the books.

GE's other segments weren't slouches, either. The company's aviation and health-care segment provided steady revenue growth of 10% and 9%, respectively, while the transportation sector kicked in a 94% jump in overall profits.

Now keep in mind, Wall Street didn't like this report much. I, however, think this is another step closer for GE to getting back to its roots -- namely, lending and energy innovations. The company has been able to generate $6.5 billion in cash from industrial operations over the past nine months, which facilitated the purchase of $1 billion worth of shares during the third quarter. With GE having ended the quarter with $91 billion in consolidated cash and sporting a dividend yield of 3.7%, I really don't see what Wall Street is pouting about.

GE looks well on its way to reclaiming its spot among Wall Street's dividend elites -- but don't stop there. Reserve your copy of our latest free report which can help you "Secure Your Future With 11 Rock-Solid Dividend Stocks."

What's your take on General Electric's quarterly results? Sound off in the comments section below, and consider adding this Dow Jones favorite to your free and personalized watchlist to keep up on the latest news with the company.

At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He wonders if he mentioned that he liked unicorns in this sentence if anyone would even notice. You can follow him on CAPS under the screen name TMFUltraLong and on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of First Solar. Motley Fool newsletter services have recommended buying shares of First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Could someone explain to me why GE stocks are so low and will they ever rise. Should I just write them off as a loss??

October 26 2011 at 8:45 PM Report abuse rate up rate down Reply

GE seems to have accumulated a lot of cash and they tell us signs indicate a rosey future. The question is, "when"? The dividend was $0.31 when things weren't so good. Now that things look better, the dividend has slumped to $0.10-0.15 for the past 9 quarters and the stock price seems mired around $16. GE may be looking at things through rose-colored glasses but the stock market isn't. When GE shows some useful activity beyond counting the cash it's keeping for itself, the market will react .

October 25 2011 at 10:36 PM Report abuse -1 rate up rate down Reply

GE is crippled by very poor top management and Board of Directors. Since Immelt has been in charge, he has missed expectations several times, cut the dividend and watched as the stock price dove by over 60%. How can a CEO remain with those credentials? Simple, an incompetent Board. There should be a "class action" against that gang of theives.

October 25 2011 at 2:30 PM Report abuse rate up rate down Reply

GE would grow in value if the company trash canned Immelt. He is the problem also GE forced retirement of Good Managers and went with the youth who are only interested the next higher position rather than contributing where they are. Had GE at $60 and should have sold then but kept thinking GE would come back as it went in free fall. I like man y long time GE employees always said GE would come back. The laugh is on us.

October 25 2011 at 11:19 AM Report abuse +1 rate up rate down Reply

Since 1999, GE has lost $460b (about 74%) of shareholder value, about $200 b of that before its collapse in 2008. With the possible exception of GM, that makes GE managers the most incompetent fools in the history of American business. This expose is the most ignorant piece of financial journalism ever written. (What's GE exposure to EU bank debt, Jeff?) Buy GE shares at your own risk.

October 25 2011 at 7:39 AM Report abuse +1 rate up rate down Reply

Educate me. Why is it that GE stock doesnt rise. I bought this garbage stock 10 years ago and I dont know what to do with it. Will it ever go up so I can unload it????

October 24 2011 at 7:30 PM Report abuse +1 rate up rate down Reply