Energy Damps GE's View -- WSJ
October 22 2016 - 3:03AM
Dow Jones News
By Ted Mann and Joshua Jamerson
General Electric Co. cut its full-year sales forecast after
reporting declining third-quarter orders and continued weakness in
its oil and gas equipment business, the latest sluggish report from
an industrial company.
The company said third-quarter organic orders -- which exclude
currency swings, acquisitions and dispositions -- fell 6%, and
industrial profits slipped 4.6% to $4.32 billion in the quarter. It
now expects revenue excluding acquisitions and divestitures to be
flat to up 2% this year, from an earlier view of up 2% to 4%.
"Global growth continues, but at a low level," Chief Executive
Jeff Immelt said on a conference call. "We plan to control our cost
even tighter as we navigate this environment."
It isn't alone in navigating rough waters. Rival Honeywell
International Inc. startled investors earlier this month when it
cut its full-year sales and profit guidance after it was surprised
by a drop-off in orders in September.
Boston-based GE, which makes a range of industrial equipment
from jet engines to MRI machines, is under increasing pressure to
show that the company's 2015 pivot away from financial services and
renewed focus on its industrial businesses is yielding benefits to
investors.
That task may be more complicated thanks to Trian Fund
Management LP, the activist firm that announced a $2.5 billion
stake in the company a little more than one year ago. Trian has
urged the company to return cash to its investors by borrowing up
to $20 billion and buying back its own shares, and is pushing GE to
drive profit growth.
GE said Friday it plans to increase its share buyback plans by
$4 billion to more than $22 billion for the year. It also
reaffirmed a critical earnings target for 2018 despite
lower-than-anticipated operating profit this year.
Shares of the company, which had fallen 11% in the three months
through Thursday's close, fell 1% in recent trading to $28.73.
The big problem for sales and earnings continues to be oil. Low
prices have triggered the postponement or cancellation of major
projects in the industry, hurting companies like GE that sell
equipment for pumping and drilling.
Oil-and-gas revenue fell 25% in the third quarter, and segment
profit fell 42%. GE has already been cutting costs aggressively in
the oil and gas unit, closing facilities and trying to standardize
product offerings to reduce expenses. Chief Financial Officer
Jeffrey Bornstein said the oil and gas business was on pace to hit
a cost-cutting target of roughly $800 million for the year, with
room for more "incremental" cost reduction in the coming year.
GE also will seek other cost-cuts "across the entirety of the
company" to help account for the long slide of the oil and gas
business and to ensure that GE still hits its target of achieving
$2 in earnings per share in 2018, Mr. Bornstein said.
Several analysts who cover the company have recently sounded
skeptical that GE will be able to hit that goal, which Mr. Immelt
laid out last year when he announced plans to sell off most of its
lending business. On Friday, the CEO affirmed it, noting that "all
of our compensation plans" are tied to GE hitting that 2018
earnings target.
GE didn't offer any update on its planned acquisitions of a pair
of European 3-D printing companies -- SLM Solutions Group AG and
Arcam AB -- that have faced trouble garnering enough shareholder
support. Mr. Bornstein said GE won't increase its tender offer for
SLM, despite opposition from hedge fund Elliott Management Corp.,
which owns more than 20% of the German firm's shares. GE could
acquire other 3-D printing firms if the Arcam and SLM deals fall
through, he said.
There were bright spots elsewhere, including a 66% increase in
sales in the company's renewable-energy business, and revenue from
its largest industrial segment, which makes turbines for power
plants, rose 37%.
Overall for the September quarter, GE reported a profit of $2.03
billion, or 22 cents a share after the payout of preferred
dividends, compared with $2.51 billion, or 25 cents a share, a year
ago. Revenue rose 4.4% to $29.27 billion.
Write to Ted Mann at ted.mann@wsj.com and Joshua Jamerson at
joshua.jamerson@wsj.com
(END) Dow Jones Newswires
October 22, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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