On Friday, General Electric (GE) and Honeywell (HON) set the tone for industrial earnings in the first quarter. We continue to believe aerospace will be a bright spot and are expecting strong performance from our three aerospace holdings when each reports results in coming trading sessions: Precision Castparts (PCP), Astronics (ATRO), and EDAC Tech (EDAC).
General Electric’s industrial performance was nothing short of excellent, in our opinion. For starters, industrial segment revenue jumped 14% on impressive double-digit organic growth (11%). Importantly, orders followed suit. Infrastructure orders, for example, advanced 20%, with equipment orders up nearly 30% and services up 11%. On an organic basis, orders increased 14%, outpacing organic top-line expansion. Industrial segment orders from growth markets also did quite well, jumping 21% in the period. We think the industrial segment order strength at GE is a significant positive data point as it relates to the health of the global economy.
CEO Jeffrey Immelt on GE’s first-quarter conference call:
“Orders were robust off a very high base. Orders growth was broad-based. Equipment was up 29%, Service was up 11%, emerging markets grew by 24% and organic orders growth was up 14%. We’re benefiting from several macro themes: global infrastructure investment, health care access, gas conversion and favorable transportation and energy markets…commercial (aviation) engine orders of $1.6 billion were up 36%, driven by strong orders for GE90, CFM56 and CF-6 engines”
Honeywell’s report was equally as impressive as GE’s. The company experienced a 7% jump in first-quarter sales, with almost all of it coming from organic means. Honeywell noted particular strength in its long-cycle businesses, namely commercial aerospace and UOP. In aerospace specifically, the firm indicated that commercial original equipment demand advanced 22%, with 18 percentage points of that growth organically based. In the company’s Performance Materials and Technologies segment (where UOP resides), sales advanced an impressive 19% (12 percentage points coming from organic means). Such strong growth prompted Honeywell to raise its bottom-line expectations for the full-year.
CEO David Cote on Honeywell’s first-quarter conference call:
“So in summary, we’re off to a great start in 2012 despite the more challenging macro environment. And while our shorter-cycle businesses have seen an impact from the slowdowns in Europe and China, we’re encouraged by the strength we’re seeing in the U.S., other high-growth regions and long-cycle. New product introductions have also helped our shorter-cycle businesses grow faster than the markets served, which, coupled with accelerating growth in our longer-cycle businesses, is leading to top-tier organic growth.”
All things considered, we remain enthused by the reports we’ve seen thus far during first-quarter earnings season, and we are reiterating our view that aerospace is still one of the most attractive places to be within the industrial sector and the broader market as a whole.