General Electric Co (GE) 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,” Morningstar analyst Daniel Holland said. “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 US$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 US 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, Connecticut-based company said profit fell in the second quarter, mainly due to a smaller finance unit, which GE has been downsizing since the financial crisis in a bid to reduce risk.
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 US$24.72 on Friday on the New York Stock Exchange.
At the same time, Immelt cautioned against expectations for a surge in profit late this year.
“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 margins this year by 0.7 percent. GE’s operating margin last year was 11.8 percent.
“That will require Herculean improvement in the second half,” said Nick Heymann, an analyst at William Blair & Co, which trades GE shares.
The trick is for GE to turn around orders quickly so it can collect revenue from customers. It cannot recognize the US$223 billion in orders as revenue until it delivers products to customers.