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For the first time since the credit crisis, industrial and financial services conglomerate General Electric (NYSE:GE) posted a double-digit profit gain for a full-year period. The next two years could see similar bottom-line growth levels, and means that GE could string together a three-year period reminiscent of its growth trends of roughly a decade ago.
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Full-Year RecapTotal sales declined 2% to $147.3 billion. Roughly two thirds of the top line, or $106.7 billion, stemmed from the namesake operating segment and experienced 2% growth for the year. Energy infrastructure and transportation sales advanced in the double digits (16 and 45%, respectively), while the aviation and healthcare businesses reported respectable 7% growth each. Only the home and business solutions business posted negative growth at minus 2%. GE Capital, the financial services arm, is the second primary division and saw revenues fall 1% to $45.7 billion.
Cost controls sent total expenses down 6% and consisted of a 2% decline at GE and 13% drop at GE Capital. This sent operating income jumping 43% to $20.1 billion, but a higher tax bill tempered the net income increase to 10% as earnings reached $14.4 billion. However, few shares outstanding and one-time charges during 2010 sent earnings per diluted share up 17% to $1.24. (To know more about income statements, read Understanding The Income Statement.)
Outlook and ValuationAnalysts project a slight turnaround and positive sales growth of almost 3% during 2012. They expect total sales of nearly $150 billion and another acceleration in 2013, as sales could rise more than 5% to almost $160 billion. The earnings projections for the next two years are $1.56 in 2012 and $1.77 in 2013 for annual growth of 13.9 and 13.5%, respectively.
GE trades at a somewhat reasonable trailing P/E of 15.3 but more reasonable forward earnings multiple of 10.7, which is below that of archrival United Technologies (NYSE:UTX) at a multiple closer to 14. The multiple off 2013 earnings is currently below 11, should growth expectations come in as planned.
The Bottom LineThe credit crisis nearly brought down GE Capital and all of GE with it, but since then the company has worked hard to right-size its business and return it to consistent growth. This has included shrinking GE Capital's balance sheet, though the struggles of archrivals, including CIT Group (NYSE:CIT) (which recently emerged from bankruptcy protection), has also helped the unit. GE also unloaded its NBC entertainment division into a venture with Comcast (Nasdaq:CMCSA), leaving a strong mix of industrial businesses that possess competitive advantages and double-digit returns on invested capital.
GE currently trades at a reasonable multiple of earnings, especially out a few years if earnings continue moving forward at a double-digit rate. Combined with a current dividend yield of 3.6%, investors have the potential to garner double-digit total shareholder returns for at least the next couple of years. Given the massive established sales base at GE, rapid growth is going to be difficult over the long haul, but the downside protection should be there as its businesses are leading performers throughout the world. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)
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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.
By Ryan C. Fuhrmann , CFA
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