As usual, there were a lot of moving parts to General Electric's second-quarter earnings, released last week. The big picture takeaway was that GE divested additional non-core assets from its financial services business, GE Capital, and the company's industrial segment reported healthy growth in operating earnings.
On the industrial front, GE grew its operating earnings by 18% year over year to $0.26 per share. Including the assets that General Electric will be retaining after it exits its traditional financial services businesses, the company generated $0.31 per share in operating earnings, representing an increase of 19% year over year.
The conference call that GE hosted along with its earnings release gave investors the opportunity to gain a greater understanding of GE's various businesses. In total, there were five major takeaways from management during the call.
1. Running the operationsBy and large, as reflected by increases in profit margins across five of General Electric's seven industrial segments, GE appears to be operating and executing well.
On the call, CEO Jeff Immelt provided the margin highlights:
2. CompetitivenessDuring the question and answer session of the earnings call, an analyst asked whether General Electric's apparent market share gains across its businesses had resulted in competitors responding with lower prices.
Although Immelt didn't answer the question directly, he weighed in about the importance of technology to remain competitive:
3. Staying productive in a challenging environmentIn light of challenging market conditions, General Electric's oil and gas revenues fell by 12% year over year, and declined by 2% organically through the first half of 2015. Yet GE's oil and gas profit margins improved by 40 basis points in the second quarter, and by 120 basis points organically for the first half. Much of this improvement was attributed to gains in manufacturing productivity and executing on its plan to cut oil and gas costs by $600 million this year.
When management was asked during the Q&A session whether it can maintain its margins in oil and gas in a challenging environment, it became clear that managing costs will be a crucial component going forward.
Immelt weighed in first:
Immediately after, GE CFO Jeff Bornstein added the following:
In other words, investors should expect that GE will cut an additional $1 billion in oil and gas-related costs in 2016 to help maintain the segment's profitability.
4. Better-than-expected prices forGE Capital asset salesGeneral Electric is officially ahead of its planned schedule to sell its non-core financial assets held at GE Capital, and now expects to divest up to $100 billion in assets this year, up from the $90 billion it anticipated in April. The company is also getting better prices for the assets than it had initially projected.
However, because the assets are being sold at a faster pace, the benefit of higher prices is likely to be offset with lower earnings.
Bornstein explained the situation on the call:
5. Clearing regulatory hurdlesGeneral Electric has two deals that it's working to clear with regulators: The sale of its appliances unit to Electrolux and the purchase of Alstom. Unfortunately, management wasn't able to disclose the specifics of any recent developments with regulators, but Immelt remained optimistic that the integrity of the deals will remain intact and should close:
Staying encouragedLast April, GE announceda plan for 90% of the company's operating earnings to come from industrial activities by 2018. During the second quarter, GE's industrial segment produced nearly 84% of its operating earnings after adjusting for one-time items and accounting for the financial assets it will retain from GE Capital.
In other words, investors should remain encouraged that General Electric appears to be delivering on its promise of becoming a highly focused industrial powerhouse.
The article 5 Must-Read Quotes From General Electric Company's Management originally appeared on Fool.com.
Steve Heller has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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