Oil Gloom Hurts GE Results
April 22 2016 - 12:22PM
Dow Jones News
By Ted Mann
The global oil rout continued to weigh on General Electric Co.,
which posted a quarterly decline in operating income and orders for
its core industrials business.
GE reported growth in revenue and core earnings for the first
three months of 2016, but declines in its units making locomotives,
power turbines and oil industry equipment weighed on results.
Shares, up 16% in the past year, slipped 1.5% to $30.50 in
Friday morning trading.
Chief Executive Jeff Immelt said the conglomerate's diversity
enabled it to withstand a "very challenging environment,"
especially in the oil and gas business. The company maintained its
annual guidance for investors but lowered its outlook for the oil
unit, saying profits could fall as much as 30% over the course of
2016 and revenue may decline by 20%.
"Diversity is a key strength during this period of volatility,"
Mr. Immelt said on a conference call. "Most of the portfolio is
strong, and we're delivering. There's plenty of business out there
to achieve our goals."
The collapse in crude oil prices has hit GE in the midst of a
generational shift at the company. Mr. Immelt is selling off the
bulk of GE Capital, the financial services arm that once provided
half of GE's profits but became a drag after nearly collapsing
during the financial crisis.
The financial exit is ahead of schedule, Mr. Immelt said Friday.
GE has signed deals for $166 billion of the roughly $200 billion in
assets it plans to sell from the unit. GE filed a request to
regulators March 31 that would allow it to shed its designation as
a systemically important financial institution and exit supervision
by the Federal Reserve.
GE said it is making progress integrating the power equipment
business it bought last year from France's Alstom SA. Profit in the
underlying power business, not including Alstom, was down 28% in
the quarter, but the company expects revenue and profits to rise in
the second half of the year.
The company's jet engine business was strong, with profit up
16%, despite a decline in equipment orders.
But the gloomy performance of the oil business dominated. The
company reported declines across all its product lines, which
include compressors, flexible risers and valves. The business has
been hardest hit by the declines in subsea oil exploration and
onshore oil and gas production in the U.S. -- where active drilling
rig counts are down 72% from their 2014 peak, Chief Financial
Officer Jeffrey Bornstein said.
Capital-spending cutbacks by producers have rippled through GE's
business. Profits in the business fell 37%, and equipment orders
fell 70% compared with the previous year. An aggressive
cost-cutting effort underway -- intended to reduce expenses in the
oil unit by more than $1 billion over two years -- wasn't enough to
prop up the unit's profit margin.
Mr. Immelt said GE is committed to the oil business for the long
term, and he parried a question about the company's interest in
acquisitions, including any assets that could be sold to satisfy
regulators in the proposed tie-up of Halliburton Co. and Baker
Hughes Inc.
"We're going to be a disciplined buyer," he said.
GE recorded a pretax gain of $59 million from selling two floors
it owned in 30 Rockefeller Plaza in Manhattan -- a suite of
offices, including for Mr. Immelt, that it will exit as part of its
move to new headquarters in Boston.
Overall for the period ended March 31, GE reported a loss of $98
million, or a penny a share, compared with a loss of $13.57
billion, or $1.35 a share, a year earlier. Revenue rose 6.1% to
$27.85 billion. The year-earlier quarter's loss was largely driven
by a $6.3 billion -tax provision and an $8.94 billion loss from
discontinued operations.
--income
Excluding the finance businesses being wound down, GE reported a
profit of 21 cents a share, while revenue came in at $27.6
billion.
Anne Steele contributed to this article.
Write to Ted Mann at ted.mann@wsj.com
(END) Dow Jones Newswires
April 22, 2016 12:07 ET (16:07 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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