General Electric Company (GE) is viewed as one of the top players among diversified-industrial stocks. With the ability to sustain and implement its balanced capital allocation plan, its strong cash position enabled it to repurchase $1.9 billion worth of shares during Q1. Along with dividends, General Electric returned $3.9 billion to shareholders during the quarter.
In this article, I will try to draw a conclusion on the company’s ability to sustain shareholder returns. To do that, I looked at the industry segments to see where General Electric Company (NYSE:GE) stands. I also looked at its recent results and strategic priorities to analyze its profitability in the current economic situation.
Industry analysis
Diversified-industrial stocks mirror the development of the global economy. Diversified-industrial products impact every part of the globe. In the first quarter, it was understandable that the U.S. industrial situation was improving.
Sales and earnings were predicted to keep moving forward at the start of 2013, particularly in U.S. markets, while European markets continue to be challenging. The forward growth builds on more positive results when compared to last year. This signifies that sales and earnings are not being suppressed by the existing slow-growth environment. After positive Q1 results, companies like 3M Co (NYSE:MMM) and Emerson Electric Co. (NYSE:EMR) have raised their projected earnings per share.
3M Co (NYSE:MMM) is solid stock for both value and dividend investors. Over the year, its price has appreciated 18%. In addition, recently it increased its dividend by 8%. I believe its cost-cutting measures, ongoing restructuring program, and a continued share-repurchase program enable it to increase shareholder value.
On the other hand, Emerson Electric Co. (NYSE:EMR) is also a safe pick for both value and dividend investors. In the past five years, it has enlarged its dividend by about 36.7%. Additionally, the stock is also trading at a discount. It has a diversified revenue base and the ability to produce strong cash flows. I think Emerson can be a safe pick for long-term investors with its solid dividends and steady price appreciation.
Where GE stands
General Electric Company (NYSE:GE) offers a variety of services all over the world and has a vast revenue base globally; in fact, it operates in seven business segments. Recently, the company announced Q1 results. It has shown growth in the U.S., while the European market continues to be troubled. In addition, GE’s power and water segment had experienced negative growth of 27%.
This is notable because the power and water segment is the company’s largest revenue-generating segment. In Q1, the European markets were worse than anticipated. This weakness also had a negative impact on margins. The first half of the year is expected to remain difficult in the European markets. However, this trend is expected to shift in the second half of the year.
The other six segments were inline with expectations. General Electric Company (NYSE:GE) saw solid growth in transportation and home and business solutions, aviation, and, excluding the impact of foreign exchange (FX), there was growth in oil and gas. On the whole, the remaining six business segments grew profits by 6%, with 40-basis points of margin growth. On a consolidated basis, operating earnings stood at $4.1 billion, up 14% compared to the 2012 Q1.
Cost-out plan and strategic priorities
I think the restructuring program is critical for General Electric Company (NYSE:GE). The company was able to cut industrial-structural costs by $200 million in Q1, and anticipates cutting those costs by $1 billion in fiscal 2013. It continues to plan on margin growth of 70-basis points for the full year. GE Capital continued its strategy of attempting to cut the overall size of its portfolio while concentrating on core growth.
In the current challenging macro environment, the company is executing on its strategic priorities. At present, its strategic priority is an early exit from media to increase investment in its core industrial businesses. For this purpose, GE is accelerating its restructuring program. Together with its restructuring program, it is also investing in technology and in its global capabilities.
Summary
Even with the recent tough macro environment, the company is well positioned for stronger performance. General Electric Company (NYSE:GE) is executing on its strategic priorities. I expect its cost-cutting efforts will offset weakness in markets plus it has an extremely strong cash position. In 2013, the company plans to return $18 billion to shareholders through a combination of dividends and share buybacks. I believe General Electric is a strong buy for substantial profits.
The article Can GE Sustain Its Profitability Momentum? originally appeared on Fool.com and is written by siraj sarwar.
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