General Electric (GE) and Honeywell (HON) are tied to the energy markets, and we had thought the fourth quarter would be challenging for the industrial conglomerates in light of declining crude oil prices and general weakness in commodity prices, almost across the board. The reality, however, is that both GE and Honeywell navigated the tumultuous energy and commodity-price environment extremely well, registering solid fourth-quarter results January 23. We plan to continue to hold GE in the newsletter portfolios for the foreseeable future.
Revenue and industrial segment profit in GE’s fourth quarter jumped 4% and 9%, respectively, with 6 of its 7 business segments growing earnings in the period. Industrial segment organic revenue leapt an impressive 9%, which is strong for any company, but for one of GE’s size, the pace of internal expansion is fantastic. The industrial giant noted that fourth-quarter margins advanced 50 basis points thanks in part to the company’s ongoing focus on reducing industrial structural costs. Fourth-quarter GAAP EPS from continuing operations jumped 6%, to $0.52 per share.
It’s hard not to like GE’s strong cash flow generation, and management noted that its oil and gas business, our primary concern heading into the quarter, was only modestly weak. In its oil and gas division, for example, orders fell just 4% and revenue was flat on an organic basis. GE’s path to its 2016 transformation remains on track, and the company’s $261 billion backlog at the end of 2014 will offer strong top- and bottom-line support. Annualizing GE’s fourth-quarter GAAP earnings indicates the company is trading at just 12 times. The company’s yield is very healthy at nearly 4%.
