GE Makes Progress on Cost-Cutting, Cash Flow Goals -- Update
July 21 2017 - 8:11AM
Dow Jones News
By Thomas Gryta and Imani Moise
General Electric Co. improved its cash flow and ramped up cost
cutting efforts -- two areas of investor focus -- in Chief
Executive Jeff Immelt's last quarter at the helm.
Boston-based GE is under increasing pressure to show that its
pivot away from financial services and renewed focus on making jet
engines, power turbines and other industrial businesses will be
good for investors. Mr. Immelt will step down at the end of the
month and be replaced by health-care unit chief John Flannery.
"The global scale of the company, along with our ability to
innovate industry-leading products and services, will help us
navigate the current environment," Mr. Immelt said Friday in a
statement prior to the company's earnings conference call.
The second-quarter results beat analyst expectations on revenue
and earnings, but Wall Street is also looking for deeper signs of
prosperity at the company to help turn around the negative
sentiment. The stock, down 16 cents to $26.53 in premarket trading,
is down about 16% for the year amid a broader market rally.
"We think 2Q results may not be enough to significantly
alleviate negative investor sentiment," said Citigroup analyst
Andrew Kaplowitz. "Despite what we view as generally solid results
in the quarter."
Cash flow in GE's industrial segment was a positive $1.5 billion
after a shocking first-quarter shortfall of $1.6 billion. The
company backed its full-year target of $12 billion to $14 billion,
and Mr. Immelt said the company expects cash flow to continue to
improve throughout the year.
GE cut $593 million in industrial costs in the second quarter
and said it was on track to meet or beat its $1 billion savings
goal by the end of the year. It has cut $670 million so far this
year.
GE has been under intense pressure to cut expenses and pledged
in March to cut $1 billion in annual industrial expenses for each
of the next two years, which is twice the level of cuts originally
laid out. The increase followed discussions with activist investor
Trian Fund Management, which has been frustrated by missed profit
goals.
In recent years, the company has turned its focus to its
industrial businesses, shedding low-margin units like home
appliances and recently closed a big oil-and-gas deal. GE combined
its own oil and gas operations with Baker Hughes Inc., a provider
of oil-field services and equipment, to form a new public company
controlled by GE.
Still, analysts are wary that GE will reach a long-term goal of
delivering $2 a share in profit in 2018. In conference call slides
posted on its website, GE said Mr. Flannery will report to
investors in mid-November after he conducts a review of the
company's business.
GE said it will include an assessment of the entire business, a
review of cost cuts, capital allocation and update the 2018
outlook. Few on Wall Street expect GE to make $2 in EPS next year.
Analysts currently project $1.81 and Mr. Immelt has already said it
would be at the high-end of the range and only if additional cost
cuts were made.
Industrial orders -- which give a glimpse at future demand for
equipment like jet engines, power turbines and oil-related
equipment -- rose 6% in the quarter, driven by strength in its
aviation and health-care businesses.
Revenue from its power business rose 5%, while health care rose
4% and aviation was flat. Oil and gas continued to struggle with a
drop of 3%.
In all, GE's second-quarter earnings fell less than expected.
Much of the drop came from a year-ago boost from the sale of its
home appliances business. The company reported a profit of $1.19
billion, or 15 cents a share, down from $2.76 billion, or 36 cents
a share, a year earlier.
Adjusted earnings fell to 28 cents from 51 cents a year earlier.
Revenue fell 12% to $29.56 billion. Analysts were expecting
adjusted earnings of 25 cents on $29.02 billion in sales, according
to Thomson Reuters.
The company also backed its prior guidance of fiscal 2017
earnings of $1.60 to $1.70 a share, and organic sales growth of 3%
to 5%.
Write to Thomas Gryta at thomas.gryta@wsj.com and Imani Moise at
imani.moise@wsj.com
(END) Dow Jones Newswires
July 21, 2017 08:56 ET (12:56 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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