10-QPeriod: Q2 FY2016

GENERAL ELECTRIC CO Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 1, 2016For Securities:GE

Summary

General Electric Company (GE) reported its second-quarter 2016 results, showcasing significant progress in its strategic transformation. The company is actively divesting the majority of GE Capital's assets, a plan that is ahead of schedule and aimed at creating a simpler, more focused industrial company. This strategic shift is a key theme throughout the report, with substantial progress made in reducing the size of the financial services business. Despite ongoing restructuring charges and the impact of integrating the Alstom acquisition, GE's industrial segments demonstrated resilience, with notable revenue growth in Power, Renewable Energy, and Energy Connections. The company returned significant capital to shareholders through buybacks and dividends, underscoring its commitment to shareholder value while navigating a complex operational landscape. The financial performance for the quarter was bolstered by a substantial after-tax gain from the sale of the Appliances business. However, the financial services segment (GE Capital) continued to report losses, albeit with a significant year-over-year improvement due to the absence of prior year charges associated with the exit plan. Investors should note the substantial progress in reducing GE Capital's ending net investment and the successful rescission of GE Capital's designation as a Systemically Important Financial Institution (SIFI), which reduces regulatory oversight.

Financial Highlights

45 data points
Beta

Revenue

$33.49B

18.5% Gross Margin

Net Income

$2.91B

8.7% Net Margin

EPS (Diluted)

$2.40

Total Assets

$401.46B

Free Cash Flow

-$4.97B

Financial Statements
Beta
Revenue$33.49B
Cost of Revenue$15.69B
Gross Profit$6.19B
SG&A Expenses$4.88B
Operating Expenses$29.67B
Operating Income$3.55B
Net Income$2.91B
EPS (Basic)$2.40
EPS (Diluted)$2.40
Shares Outstanding (Basic)1.13B
Shares Outstanding (Diluted)1.15B

Key Highlights

  • 1GE is ahead of schedule on its GE Capital Exit Plan, having signed agreements for $181 billion of ending net investment (ENI) as of June 30, 2016.
  • 2The company completed the sale of its Appliances business to Haier for $5.6 billion, recognizing an after-tax gain of $1.8 billion in the second quarter.
  • 3Total consolidated revenues increased by 15% year-over-year to $33.5 billion, primarily driven by acquisitions, notably Alstom, and the sale of the Appliances business.
  • 4Industrial segment revenues grew by 7% to $28.6 billion, with notable strength in Power, Renewable Energy, and Energy Connections, although Oil & Gas experienced a significant revenue decline.
  • 5GE Capital's continuing operations reported a net loss of $600 million, a 22% increase in losses compared to the prior year's quarter, but a significant improvement from the prior year's six-month period.
  • 6The company returned $18.0 billion to shareholders in the first half of 2016 through share buybacks ($13.7 billion) and dividends ($4.3 billion).
  • 7GE Capital successfully obtained approval for the rescission of its designation as a Systemically Important Financial Institution (SIFI) from the Financial Stability Oversight Council (FSOC).

Frequently Asked Questions

General Electric is significantly progressing with its GE Capital Exit Plan, aiming to reduce the size of its financial services business. As of June 30, 2016, the company had signed agreements for $181 billion of ending net investment (ENI) and expected to largely complete the plan by the end of 2016. This strategic move aims to create a simpler, more valuable industrial company.

The acquisition of Alstom's Thermal, Renewables, and Grid businesses, completed in November 2015, had a substantial impact on GE's Power, Energy Connections, and Renewable Energy segments. For the six months ended June 30, 2016, Alstom contributed $6.0 billion in revenues and an operating loss of $0.4 billion, which included purchase accounting adjustments and acquisition-related charges.

The industrial segments collectively saw a 7% increase in revenue to $28.6 billion for the quarter. Power, Renewable Energy, and Energy Connections showed strong revenue growth, largely due to acquisitions. However, the Oil & Gas segment experienced a significant revenue decline of 22% due to market conditions. Industrial segment profit decreased by 5% due to lower earnings in Oil & Gas, partially offset by gains in Power, Aviation, and Healthcare.

GE Capital's continuing operations reported a net loss of $600 million for the quarter, marking a 22% increase in losses compared to the prior year's quarter. This was primarily driven by core decreases, including excess interest expense and higher insurance reserve provisions. However, GE Capital's six-month loss significantly decreased by 76% year-over-year, mainly due to the absence of prior year charges related to the GE Capital Exit Plan.