The Strategist

General Electric incurs losses in Q3 and reorganizes its energy business

10/31/2018 - 11:53

General Electric Co. suffered a net loss in the third quarter. The results were weaker than market expectations, and the company reduced dividends and announced reorganization of its problematic energy division (GE Power).

According to a press release from GE, the net loss in July-September amounted to $ 22.81 billion, or $ 2.62 per share, compared to net income of $ 1.32 billion, or $ 0.15 per share, for the same period last year.

Adjusted earnings per share were 14 cents with a consensus forecast of 20 cents.

GE's quarterly revenue declined by 4%, to $ 29.57 billion, while the average forecast of analysts polled by FactSet suggested a less significant reduction, to $ 29.77 billion.

GE Power will be divided into two parts. The first will unite products and services of General Electric (GE) in the field of gas generation, the second will move away the portfolio of energy assets of GE in all other areas, including steam turbines, nuclear power engineering, power transmission technologies, among others.

Analysts have already compared the new structure of GE Power with the release of low-quality assets in the banking industry in the so-called bad bank.

In the third quarter, GE Power reduced revenues by 33% to $ 5.7 billion. Operating loss was $ 631 million compared to a profit of $ 464 million a year earlier.

GE Renewable Energy division noted revenue growth of 15% to almost $ 2.9 billion, including sales of equipment for wind power plants jumped 37%. However, due to increasing price pressure, the unit's profitability fell from 8.7% to 2.1%.

Revenue from the aircraft manufacturing division of GE Aviation grew by 12% in July-September, to $ 7.48 billion, thanks to an increase in the production of the new engine for narrow-body aircraft. Orders of this business jumped by 35%.

In the oil and gas business, GE recorded an increase in revenue by 7%, to $ 5.67 billion. Revenue in the medical equipment segment (GE Healthcare) remained almost unchanged, reaching $ 4.7 billion. Revenues in the field of transport engineering went down by 2% to $ 932 million.

Starting with the next dividend announcement (December 2018), GE will cut quarterly payments from 12 cents to 1 cent per share. It is expected that this step will save the company about $ 3.9 billion per year.

Previously, GE postponed publication date of financial statements for the third quarter of 2018 from October 25 to October 30, so that the new CEO and Chairman of the Board of Directors of the company Lawrence Culp had more time to inspect the business and assess the situation. Culp became the head of GE on October 1 after the dismissal of John Flannery. Previously, he served as CEO of the Danaher conglomerate, and joined the GE Board of Directors in April 2018.

“Our results are far from realizing the full potential,” Culp noted during the publication of quarterly reports. For the first time, he prioritized strengthening of units starting with GE Power and a more rapid reduction in debt burden.

Recently, General Electric has been experiencing significant difficulties, and its capitalization has fallen by almost 45% in the last 12 months, to $ 98.2 billion.