General Electric stepped up its strategy of shedding businesses outside its industrial core during its third quarter. It spun off its North American consumer-finance unit, Synchrony Financial, in an initial public offering, and agreed to sell its consumer-appliances business to Electrolux for $3.3 billion.
The question now is how well the industrial engine driving the company will perform, particularly as the global economy looks increasingly shaky. G.E., the largest industrial company in the United States, reported results on Friday that showed encouraging progress.
Profit slightly exceeded Wall Street’s expectations, and revenue was a bit below. The modest revenue shortfall, G.E. executives said in a conference call, was explained by some gas and wind turbine sales that were pushed back a few months, and should be completed before the end of the year.
Looking ahead, G.E. executives said they expected strong demand for equipment like rail locomotives and jet engines, with industrial orders over all up 22 percent. Orders in the United States rose 25 percent.
Current orders signal future sales, and in their call with analysts, executives presented an optimistic outlook, despite the recent turbulence in the financial markets and falling oil prices. The company said that it expected industrial revenue growth for the year to beat the higher end of the 4-to-7-percent range projected previously. “We’re looking for a very strong fourth quarter,” said Jeffrey S. Bornstein, G.E.’s chief financial officer.
The quarterly performance, said Steven Winoker, an analyst at Bernstein Research, was “good, and better than I had expected, especially the strength in orders.”
Shares of G.E. closed at $24.82 on Friday, up 2.3 percent.
The company reported net profit of $3.5 billion, an 11 percent increase from the year-earlier quarter. Its operating earnings from continuing operations, which exclude the impact from operations sold off or closed down, rose 6 percent, to 38 cents a share. That was slightly ahead of the average estimate of securities analysts of 37 cents a share, as compiled by Thomson Reuters.
G.E.’s revenue across the corporation rose 1 percent, to $36.2 billion, from $35.7 billion last year. That was below the $36.8 billion forecast by Wall Street analysts.
In the call, Jeffrey R. Immelt, G.E.’s chief executive, was specifically asked about fears for global growth, and he responded with a brief survey of what he is seeing in G.E.’s industrial businesses. The United States market, he said, is “probably the best we’ve seen since the financial crisis.” Europe and Japan, he added, are soft, but that has been true for a while and is not a surprise.
In China, G.E. is enjoying robust sales of its aviation and medical-imaging equipment, even though growth in the Chinese economy is slowing down. China, Mr. Immelt said, is “a micro, not a macro, story.”
With oil prices falling, Mr. Immelt said there was “definitely a lot more caution” in spending plans for oil field equipment. G.E. has built up its oil and gas equipment business so that it accounts for a rising share of the company’s revenue and profit. According to Bernstein Research, the oil and gas unit will generate an estimated $19.5 billion in revenue this year, or 18 percent of G.E.’s industrial revenue. A decade earlier, the oil and gas share was 4 percent.
Yet across its industrial businesses, Mr. Immelt said, “the underlying activity is reasonably healthy.”
The quarterly results do reflect the company’s continuing tilt toward industrial since the financial crisis hit in 2008. Since then, G.E. has increased its investment in products like oil field machinery, power generators, jet engines and medical imaging equipment, while paring back its big finance arm, GE Capital.
In the quarter, revenue from the industrial businesses grew 4 percent, excluding the contribution from acquisitions. GE Capital’s revenue declined 1 percent.
Before the financial crisis, GE Capital routinely accounted for more than half of the corporation’s profit. G.E.’s goal is to reduce the share of its earnings that come from the finance unit to 25 percent by 2016. In the quarter, GE Capital contributed 39 percent of total earnings, and, G.E. executives said, the company is on track to hit its 2016 target.
Another 2016 target is to lift the profit margins in its industrial business to 17 percent, and analysts say G.E.’s cost-cutting efforts are on pace to attain that goal. At the end of last year, the profit margin on the industrial business was 15.7 percent. In the quarter, industrial margins rose nine-tenths of a percent from the year-earlier quarter. For G.E.’s big industrial business, a 1 percent improvement in margins increases profits by more than $1 billion.
So with a $250 billion backlog of orders, margin improvements add up. A crucial tactic in the G.E. game plan, said Brian K. Langenberg, an independent analyst, is to “take cost out to capture higher profit margins in their huge backlog of business.”
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