GE reports drop in profit, but beats estimates due to demand for jet engines

General Electric Co. reported a second-quarter profit that beat analysts’ estimates as demand for jet engines and oil-and-gas drilling equipment drove the order backlog to a record.

Adjusted profit from continuing operations of 36 cents a share exceeded the 35-cent average of 13 analysts’ projections compiled by Bloomberg. Earnings on that basis were US$3.7 billion, down 8% from a year earlier, the Fairfield, Connecticut- based company said today in a statement.

Chief Executive Officer Jeffrey Immelt is investing in the aviation and oil and gas divisions, through purchases including Lufkin Industries Inc. and by opening factories, as he seeks to boost sales and profit from manufacturing and service operations. Profit margins at the industrial units are poised to keep expanding, he said today.

“You’re seeing a little faster growth in those businesses, and that’s going to be a main focus on the industrial side and across the whole company,” Christian Mayes, an Edward Jones & Co. analyst in St. Louis who has a hold rating on GE, said in a telephone interview. “Those are areas that have the most potential and where they’re spending money on acquisitions.”

The shares rose 2.2% to $24.14 at 7:42 a.m. in New York before regular trading. GE’s 13% year-to-date gain through yesterday trailed the 18% advance for the Standard & Poor’s 500 Index.

Aviation sales climbed 9%, as did revenue for the oil and gas segment. GE Capital, the finance unit, reported sales of $11 billion, 3% less than a year earlier. The industrial backlog rose 3.2% to $223 billion.

Total revenue fell 4% to $35.1 billion, GE said, trailing the $35.6 billion average estimate in a Bloomberg survey of 10 analysts.

The profit margin at the industrial businesses grew 50 basis points, or 0.5%age point, in the quarter, GE said. Immelt has pledged to expand margins by 70 basis points this year. Operating earnings at the units grew 2% from the same period in 2012 to $3.8 billion.

“We expect margin expansion to continue and segment profits to grow in the second half of the year,” Immelt said in the statement.

GE agreed to buy Lufkin Industries, a manufacturer of oil- field equipment, in April for about $3.3 billion. Its $4.3 billion acquisition of Avio SpA, an aerospace-parts maker that counts GE among its biggest customers, is scheduled to close in the third quarter, according to the statement.

Counting pension costs and discontinued businesses, GE’s net income rose 1% to $3.13 billion, or 30 cents a share, from $3.11 billion, or 29 cents, a year earlier.

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