GE Badly Misses Q3 Earnings, Lowers View & Defers Dividend

Industrial goods manufacturer General Electric Company GE reported relatively lackluster third-quarter 2017 results and badly missed earnings estimate despite top-line growth. GAAP net earnings from continuing operations for the reported quarter were $1,905 million or 22 cents a share compared with $2,097 million or 23 cents a share in the year-ago quarter. Including industrial and other verticals, operating earnings were 29 cents per share, which missed the Zacks Consensus Estimate of 50 cents.

Revenues

Total consolidated revenue for the reported quarter increased 14% year over year to $33,472 million and surpassed the Zacks Consensus Estimate of $31,921 million. While the Industrial segment revenue improved 10% year over year to $30,046 million, GE Capital revenues declined 8% to $2,397 million. Organic revenues for the Industrial segment decreased 1% for the quarter to $26,911 million.

General Electric Company Price, Consensus and EPS Surprise

 

General Electric Company Price, Consensus and EPS Surprise | General Electric Company Quote

Total orders for the Industrial segment increased 11% year over year to $29.8 billion in the reported quarter, with significant order improvements from the Transportation segment (up 54%), partially offset by a decline in Lighting (down 29%) and Power (down 18%). Total backlog of equipment and services at quarter-end was $328 billion, up 3% year over year.
    
Revenue by Segment

The company reorganized its segments during the quarter as the Energy Connections business within the former Energy Connections & Lighting segment was combined with the Power segment and presented as a single reporting segment called Power. The GE Lighting and Current business were reported as a separate segment called Lighting.

Revenues from Lighting decreased 16% to $483 million, while Oil & Gas revenues were up 81% year over year to $5,365 million due to revenues from with Baker Hughes Incorporated. Revenues from the Aviation segment increased 8% to $6,816 million largely due to higher services revenue. Transportation revenues declined 14% year over year to $1,074 million on lower locomotive shipments.

Power segment revenue was down 4% year over year to $8,679 million, while revenues from the Healthcare segment improved 5% to $4,724 million due to solid volume and cost productivity. Revenues from the Renewable Energy segment were up 5% year over year to $2,905 million largely due to higher services revenues. Revenues from the GE Capital segment decreased 8% year over year to $2,397 million.

Margins, Balance Sheet and Cash Flow

Despite stringent cost-cutting and simplification initiatives, General Electric recorded lower margins in the reported quarter due to headwinds in the Power and Oil & Gas segments. Industrial segment operating profit decreased 7% year over year to $3,501 million, with a decline in profits in Power (down 51%), Oil & Gas (down 35%), and Transportation (down 11%), partially offset by a significant rise in profits in Renewable Energy (up 27%), Healthcare (up 14%) and Aviation (up 12%). Total segment profit decreased 16% year over year to $3,630 million. Non-GAAP operating margin for the Industrial segment declined to 11.8% from 14% in the prior-year period.  

Cash generated from operating industrial activities for the quarter (excluding deal taxes and pension plan) totaled $1,740 million, down 40% year over year. Cash and marketable securities at quarter-end aggregated $78.6 billion. The company has returned $10 billion to shareholders year to date, including $3.7 billion in share buyback. GE Capital has returned $4 billion in dividends to parent General Electric year to date. The company deferred its decision on additional dividends until Insurance reserve review was completed.

Outlook Lowered

With challenging quarterly results, General Electric significantly lowered its guidance for 2017. The company currently anticipates operating earnings within $1.05–$1.10 per share, significantly down from earlier expectations of $1.60-$1.70. However, the company expects an improvement in 2018 with structural changes, simplification and cost-cutting initiatives.

General Electric currently has a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the industry include Danaher Corporation DHR, Honeywell International Inc. HON and Leucadia National Corporation LUK, each carrying Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Danaher has a long-term earnings growth expectation of 11.7%. It has beaten earnings estimates in each of the trailing four quarters with an average positive surprise of 2.6%.

Honeywell has a long-term earnings growth expectation of 9.4%. It has beaten earnings estimates thrice in each of the trailing four quarters with an average positive surprise of 2.1%.

Leucadia has a long-term earnings growth expectation of 18%. It has beaten earnings estimates twice in the trailing four quarters with an average positive surprise of 5.4%.

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