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General Electric Co. posted quarterly results that topped expectations on Friday, as earnings from aviation, health care and transportation offset weak power and oil and gas profits, sending shares sharply higher.

GE affirmed its forecast for 2018 earnings and cash flow, and said it expects to book as much as US$10-billion in proceeds from divesting industrial assets this year. Those comments eased concern that GE would post poor results.

GE’s profit reflected 7-per-cent revenue growth and vigorous cost cutting. Revenue rose in aviation, oil and gas and health care, offsetting declines in power, transportation, lighting and renewable energy. GE sliced US$1-billion in costs, including $800-million in industrial structural costs.

GE’s shares were up 3.8 per cent to US$14.52 on Thursday. The stock has lost more than half its value in the past last year.

But GE also took a US$1.5-billion reserve charge for potential costs associated with its discontinued WMC mortgage business, formerly part GE Capital.

The U.S. Department of Justice has been investigating the activities of GE’s former mortgage unit during the subprime mortgage crisis, since 2015. GE said settlement discussions with the DOJ in March and analysis of other banks’ reserves prompted it to take the charge, but it sees limited impact to results.

“We do not expect this to change our view on GE Capital with regards to cash and liquidity,” GE chief financial officer Jamie Miller said on a conference call with analysts.

Excluding adjustments, GE earned US$369-million, or 4 US cents a share, on revenue of US$28.7-billion. That compared with 1 US cent a share a year ago.

While several analysts thought GE handily beat forecasts, others cited the unadjusted earnings as being more telling.

“I’m looking at it as coming in as expected,” analyst Jeff Windau at Edward Jones, said of the results and the adjustments. “And expectations were low.”

JPMorgan analyst Steve Tusa was among those who said GE may cut its full-year earnings forecast in coming months. While results were “not that bad” compared with other quarters, Mr. Tusa said, negative free cash flow of US$1.68-billion was weaker than he expected. GE typically reports negative cash flow early in the year as it spends on inventory shipped later in the year.

GE earned an adjusted 16 US cents a share, up from a restated 14 US cents a share a year earlier. Analysts on average had expected 11 US cents a share, according to Thomson Reuters I/B/E/S. GE recently restated 2017 results to reflect changes in accounting standards.

Analysts had forecast GE’s profit to decline in the first quarter and some thought Friday’s results might fail to meet even those diminished expectations.

But the company’s aviation, transportation and health-care businesses produced double-digit profit growth in the quarter, boosting overall results.

Profit at GE’s power business fell 38 per cent on a 9-per-cent decline in sales; orders dropped 29 per cent.

“The industry continues to be challenging and is trending softer than our forecast,” GE said of the power business.

Profit in GE’s oil and gas unit fell 30 per cent, excluding restructuring and other charges, GE said.

Reuters

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