GE - General Electric Company - Q2 2013 Earnings Call Transcript

    Company Name:General Electric Company
    Event Title:Q2 2013 Earnings Call Transcript
    Event Date:19-Jul-2013
    Event Time:08:30 AM ET



    Good day, ladies and gentleman and welcome to General Electric Second Quarter 2013 Earnings Conference Call. At this time, all participants are in listen-only mode. My name is Shakauna and I'll be your conference coordinator today. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Trevor Schauenberg, Vice President of Investor Communications. Please proceed.

    Trevor A. Schauenberg

    Vice President, Corporate Investor Communications
    Thank you, Shakauna. Good morning and welcome everyone. We are pleased to host today's second quarter webcast. Regarding the materials for this webcast, we issued a press release earlier this morning and the presentation slides are available via the webcast. The slides are available for download and printing on our website at

    As always, elements in this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today. Those elements can change as the world changes, please interpret them in that light. For today's webcast with a large group here, we have our Chairman and CEO, Jeff Immelt, and our Vice Chairman and new CEO of GE Capital , Keith Sherin and our new CFO for GE Jeff Bornstein. Now I would like to turn it over to our Chairman and CEO, Jeff Immelt.

    Jeffrey R. Immelt

    Chairman and Chief Executive Officer
    Great. Thanks, Trevor. Good morning, everybody. On the first page the environment improved slightly in the second quarter, emerging markets remain resilient while Europe stabilized. Orders in the U.S were the strongest sometime with 20% growth. And overall our orders grew by 4% and backlog increased to $223 billion.

    Our earnings were solid, the reported EPS was $0.36 but this includes $0.02 of uncovered restructuring. On sustaining basis it would have been $0.38 up slightly from 2012 and year-to-date EPS of $0.75 up 6%. Operations were strong in the quarter, margins grew by 50 basis points and were on track for 70 basis points for 2013. Our simplification efforts have result in 470 million of cost as year-to-date and we had a solid performance in cash .

    Our disciplined balanced capital allocation plan continues through the half, we have returned about $10 billion to investors who are in the way to $18 billion goal. As per M&A, we completed Avio and Avio remains on track for third quarter close. So all-in-all, a good quarter for operating and strategic execution. Our orders growth remain solid at plus 4% and as I said earlier, backlog grew to 223 billion. Performance of broad-based, we have services growth in five or six businesses.

    Orders growth accelerate in China, the U.S. and Europe. Aviation and oil and gas remain very strong with their combined backlog growing by $7 billion. Let me give you a few of our other highlights. Oil and gas orders grew by 24% with double-digit growth in four or five segments. Aviation and commercial spare orders grew by 19%, solutions equipped orders grew by 9% in U.S. energy management whereas grew by 19%. American power generation service orders grew by 24%.

    We saw few headwinds like heavy duty gas turbines but there are signs of strength. We continue to have price to backlog with orders pricing up 0.9% and we've now had positive orders price for the past six quarters. This will contribute to a positive value GAAP in the second half of 2013 beyond. Our organic growth was down 1% for the quarter but it's really wind turbine story. Organic growth Power & Watergrew by 5% growth markets expanded by 5% with four regions up by double-digits. We continue to make progress in key regions like Russia, Africa and China. Our growth market position is a competitive advantage for GE.

    Services grew by 2% with broad-based strength and we're encouraged by services in the Aviation , Oil & Gas and transportation . Transportation services is a particular highlight with growth of 28%. We continue to be impacted by the sluggish European economy for gas turbine services and U.S. sequestration impacted our military spares business. The service margins grew by 70 basis points and backlog grew to $166 billion. We made solid progress across the company with our new product launches.

    The Paris Air Show was very successful for GE with $26 billion of wins. We're gaining share in healthcare with robust product launches and are expanding service offerings with new software launches in aviation spare and healthcare . In the second half, revenue will be positively impacted Power & Water shipment timing. Specifically 70% of our gas turbines, wind turbines and distributed power contracts will be shipped in the second half.

    Our strong margin expansion with growth of 50 basis points . Every business grew in the quarter except for home and business solutions. And even in that segment appliances expanded while -- lag. And were on track for 70 basis points for the year. Key margin execution drivers are within our control. We have one of the strongest value gaps in history as we generate both price and material deflation. We'll manage R&D to be flat for the year or reduce SG&A by at least $1 billion. We continue to execute multiple restructuring projects with attractive paybacks and we're in the process of completing our project for 2013 while developing a pipeline of new ideas.

    The key driver for margin improvement in the second half is the power and water volume growth will remain on track. Overall margins were slightly better than we expected in second quarter and that gives us more confidence going forward. Our cash execution improvement of quarter, second quarter industrial CFOA was up 60% excluding the impact of NBCU related taxes. In the quarter we announced GE capital we'll pay upto $6.5 billion dividend to the parent for the year and we remain on track for CFOA goals. We've returned 9.9 billion to investors in the first half through dividends and buybacks.

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