GE order book surges
May bode well for global manufacturing
General Electric Co on Friday unveiled a surprise jump in its backlog of orders for locomotives, X-ray machines and scores of other industrial products, boosting the conglomerate's shares and stoking hopes for gains in manufacturing around the world.
GE's presence in most parts of the global economy, including energy, finance, manufacturing and transportation, makes it a harbinger of macroeconomic trends.
“Many customers have moved from the ' doing your homework' stage toward moving pen to paper and placing orders,” said Morningstar analyst Daniel Holland. “It is encouraging to see customers willing to sign agreements for a new piece of capital equipment. That indicates a level of certainty in the economic situation.”
GE's backlog at the end of the second quarter was up 4 percent from the end of the first quarter to $223 billion, a staggering figure that gives the company plenty of work across its seven industrial units. The order book rose 20 percent in the United States alone.
“This is as close as GE comes to a positive surprise as possible,” said Tim Ghriskey of Solaris Asset Management, which owns GE shares.
Orders for jet engines, subsea oil blowout preventers, and other aviation and energy products comprise large chunks of the backlog and are widely considered to be among GE's strongest growth areas, drawing the most optimism from shareholders.
The Fairfield, Connecticutbased company said profit fell in second quarter, mainly due to a smaller finance unit, which GE has been downsizing since the financial crisis in a bid to reduce risk.
But the results were better than expected, and Chief Executive Jeff Immelt said GE remains on track for a “good year.” Its shares closed up 4.6 percent at $24.72 Friday on the New York Stock Exchange.
At the same time, Immelt cautioned against expectations for a surge in profit late in 2013.
“We are not planning for an improved environment for the balance of 2013, but execution levers are in our control: a solid backlog, good technology, strong cost control, and disciplined capital allocation,” Immelt said on a conference call with investors.
Some analysts remain skeptical that the conglomerate will be able to achieve its goal of boosting 2013 margins by 0.7 percent. GE's 2012 operating margin was 11.8 percent.