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Stock Strategist

GE Sees Fruits of Diversification

Oil and gas weakness is offset by the rest of the portfolio in the fourth quarter.


 General Electric's (GE) industrial portfolio delivered a solid quarter of growth as ongoing momentum in several U.S. end markets more than offset weakness in the energy sector. Industrial revenue grew organically by 9% year over year to $32.2 billion in the fourth quarter, reflecting robust equipment sales in power and water, shipment and services growth in transportation, and ongoing improvement in health care. Strength in these segments offset weakness in oil and gas, which managed to hold sales flat on an organic basis amid challenging industry conditions. The quarter's results closed 2014 with about $108 billion of industrial revenue, reflecting a 7% year-over-year organic growth rate.

The industrial segment operating margin improved 50 basis points year over year to 18.8% in the quarter, as cost-reduction efforts intensified companywide. Oil and gas in particular stepped up efforts to rationalize the cost base as segment order growth slowed, anticipating the need to operate a leaner footprint in the near term. For 2014, industrial operating margins expanded 50 basis points to 16.2%, as the business mix skewed toward lower-margin equipment sales; however, analytics expanded service margins an impressive 220 basis points to 32%, underscoring the attractiveness of expanding services as a percentage of GE's revenue over time.

Barbara Noverini does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.