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Friday, October 13, 2006

The Problem With GE's Numbers (GE)

GE reported third quarter earnings. On the surface, the news was good.

Revenue rose 12% to $40.9 billion. The profit from the company's business segments rose 13% to $6.5 billion. Nothing wrong here.

But, the company's infrastructure business, well over 20% of GE's revenue, made up for cracks in some of the big conglomerate's other businesses. Infrastructure revenue was up 20% to $12.1 billion in the quarter. This helped mask slow revenue in the company's industrial and healthcare operations.

The segment profit in the infrastructure group was up 24% to $2.3 billion. No other unit grew at nearly this rate, and even though GE operates five units, the infrastucture part of the company drove over a third of total segment profit. Again, the unit was able to mask poor segment profit growth in the NBC Universal and Commercial Financial operations.

The knock against GE on Wall St. is that it operates too many units and the divisions do little to help one another. It is a conglomerate with little synergy. It shows in the market. Over the last two years, the Dow is up about 17% while GE's stock has only risen 7%. Investor might have been better off in CDs.

Until GE can lick the problem of one of its large divisions carrying the others, the stock is likely tin under perform.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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