GE

Honeywell and General Electric Reveal Industrial Strength

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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 … Read more

GE’s Industrial Backlog Hits New Highs in Fourth Quarter; GE Capital Continues to Improve

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General Electric (GE) reported fourth-quarter results Friday that showed strong organic revenue growth, a surge in infrastructure orders, and continued improvement at GE Capital. We continue to watch GE’s industrial backlog closely, and its continued growth to record levels suggests to us that the global economy is healthier than most pundits believe.   GE’s total revenue expanded 4% (excluding NBCU) in the quarter, and the firm’s industrial revenue growth came in at 10% on the heels of organic expansion of 5%. Infrastructure orders jumped 15% (organic orders increased 9%) during the quarter, with equipment orders up 23% and services up 7%. Notably, industrial segment emerging market orders increased a whopping 26% from the same period a year ago. GE had … Read more

We Liked GE’s Third-Quarter Performance; Achieves Record Backlog, As Industrial Organic Growth Accelerates

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General Electric (GE) posted solid third-quarter results Friday that showed strength in industrial orders and improvement at GE Capital. We remain on the sidelines with respect to owning GE’s shares, but we were encouraged by the quarterly performance. The industrial giant’s revenues expanded 12%, excluding certain items, led by a 19% increase in industrial segment sales (international industrial sales jumped 25%). The firm noted that industrial organic revenue growth accelerated and was a very strong 8% and that its industrial backlog reached a record $191 billion (up from $189 billion at the end of the second quarter) thanks to a 16% jump in industrial orders (the fourth straight quarter of double-digit growth). GE said it received over $3 billion in … Read more

Stay the Course; This is Not Lehman II, S&P Downgrade Meaningless

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As we had indicated a few weeks ago, investors should turn off the political news related to the debt ceiling debate, and we now encourage investors to stay the course with their investment strategy, despite the media’s attempt to amplify yet another containable crisis. When we first published our report suggesting that there was no cause for worry about the debt-ceiling deadline, we received quite a number of questions about how we could be so confident. Well, first of all, there is a degree of common sense: 1) the President could take it upon himself to invoke the use of the fourteenth amendment, which indicates that the US must make good on all of its debts and 2) politicians had already lived through the mistakes … Read more

Ignore Debt Ceiling News, Focus on Corporate Earnings

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Simply put, the United States is not going to default on its debt. In other words, we think any market action resulting from the debt-ceiling issue will be irrelevant in coming months, and resolve itself in due time — as it has with any other crisis. Further, we remain unconvinced that this topic is a legitimate concern for long-term equity investors. The fact that America has a large national debt (and a problem with entitlement programs) is well documented in every history and social-studies textbook in grammar schools across the country; how can this be something that will blindside the markets? We’re not talking about derivatives on complex mortgage instruments here. The debt-ceiling deadline is purely a political issue, one … Read more

GE Posts Strong Second-Quarter Results, Industrial Orders Surge

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General Electric (GE) posted strong second-quarter results Friday. Adjusted revenue advanced 7% in the period, while operating profit burgeoned 18% from last year’s quarter. The conglomerate experienced particular earnings strength from recovering GE Capital and its transportation segment, while its energy infrastructure and home and business solutions segments lagged behind considerably. Importantly, the company noted that infrastructure orders were up 24%, with equipment and services orders increasing 33% and 16%, respectively — backlog reached a new all-time high of $189 billion at the end of the quarter (it had been $177 billion in the first quarter). GE indicated that industrial earnings should improve in the second half of this year, with expectations for the cycle to accelerate in 2012. We … Read more

Our Take on United Techologies’ Second Quarter

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United Technologies (UTX) posted excellent second-quarter results Wednesday, with sales advancing 9% (6% organic) and net income jumping nearly 20% from the prior-year period. The firm’s operating margin for the quarter was 15.9%, 120 basis points higher than last year. Impressively, the firm noted that for the first time since mid-2008, all six of its business segments showed organic growth in the period. Further, order rates at Otis were up 23% thanks to strong demand from Asia and China, while order rates for commercial HVAC new equipment at Carrier jumped 13%. The firm’s aerospace segments continue to perform well, and we expect such strength to continue as Boeing (BA) and Airbus (EADSY.PK) continue to ramp up commercial aircraft deliveries in … Read more

Our Case for Precision Castparts — Upside to $200 Per Share

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Precision Castparts has long been a favorite of ours. The firm’s investment cast products segment (about 34% of sales) makes the structural castings (metal blocks) and the rotating airfoils (blades) that form aircraft jet engines. Though a structural casting has a longer useful life, a jet engine’s airfoil components frequently need to be replaced upon maintenance (think razor, razor-blade model). The firm’s forged products (about 41% of sales) are used in landing gear, bulkheads, and other airframe components, while its fasteners (about 25% of sales) are used in such critical applications as wing-to-fuselage and engine-to-wing connections. Precision’s components are crucial to flight safety, particularly its metal castings, which preserve engine integrity during intense thermal conditions. Plus, and perhaps most important, Precision … Read more

Boeing Faces Challenges in the Narrowbody Market

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This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/273827-boeing-facing-challenges-in-narrowbody-market   Aerospace executives know all too well of the difficulties and complexity of developing brand new planes. Investors have learned that aerospace management is often too optimistic in setting entry-into-service dates. Readers have to look no further than the troubles and serial delays of Boeing’s 787 Dreamliner and Airbus’ A380 to get the gist of what I’m talking about. But have airline customers wised up, too? And, if so, will the perception of pursuing a brand new build to replace its 737 in 2019-2020 actually hurt Boeing and ultimately provide an advantage to Airbus’ A320neo in the 150 to 200 seat category? To the first question: absolutely. Bloomberg reported on Southwest’s (LUV) … Read more

Sorting Through the Aerospace Supply Chain

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This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/273424-sorting-through-the-aerospace-supply-chain  As outlined in the previous two editions, The Future of the Narrowbody Market and How to Play the Upswing in Commercial Aerospace, expected deliveries of commercial planes are set to advance considerably in coming years. In this third edition, let’s dig into the valuation and potential upside of Precision Castparts (PCP), one of the best long-term plays on commercial aerospace demand. We’ll also dive into an interesting small-cap play and a compelling micro-cap opportunity in the aerospace supply chain. For new readers to this series of articles and analysis, let’s briefly review the trajectory of large commercial aircraft deliveries during the next several years. Aside from the fundamental drivers (replacement planes, … Read more