By Thomas Gryta
General Electric Co.'s second-quarter profit dropped 30% from a
year earlier as weakness in the company's power division continued
to offset growth in other major units.
While the conglomerate backed its 2018 profit goal, it said free
cash flow would be at the low end of its previous estimate and
reiterated that it will take years to turn around the power
division.
The company's adjusted earnings of 19 cents a share for the
period beat Wall Street expectations for 17 cents a share,
according to Thomson Reuters. Revenue of $30.1 billion also topped
consensus projections of $29.3 billion.
GE recently unveiled its roadmap for restructuring under Chief
Executive John Flannery, a series of moves to dismantle the company
short of a complete breakup of the onetime bellwether. Over several
years, GE plans to hive off its Healthcare unit into a separate
company and shed its majority holding in oil-and-gas firm Baker
Hughes.
GE said Friday that its plan to sell $20 billion in assets is
"substantially complete."
"We saw continued strength across many of our segments,
especially in Aviation and Healthcare," CEO John Flannery said in
prepared remarks, noting that GE cut costs in its industrial
divisions by $1.1 billion in the first half of the year.
The company's shares were off 3.2%, or 44 cents, at $13.29 in
morning trading.
On a conference with analysts Friday, Mr. Flannery, who took the
helm at GE last August, said the company is "meeting or beating our
plan in all businesses except for power."
He called that division -- which makes turbines used in power
plants to generate electricity -- the biggest challenge facing the
company and said the protracted downturn for that market is
pressuring cash flow and working capital.
The division's revenue fell 19% from the year-earlier quarter to
$7.6 billion on a 26% drop in orders, while profit declined 58%. GE
said it is still working on trimming the business, while focusing
on servicing its existing customers.
The power division expects to ship 50 gas turbines this year. So
far it has sold 19 gas turbines compared with 41 at the same point
last year. Orders are usually stronger later in the year, Chief
Financial Officer Jamie Miller said, but he noted that some new
orders for the massive machines have moved to the second half.
GE is continuing to cut costs in the business and close
facilities. Last year, it set plans to cut 12,000 jobs in the
division.
"The market is challenging but we need to work through that," Mr
Flannery said. "It is going to be a multiyear fix with some
volatility."
GE reported second-quarter net income of $615 million, down from
$875 million a year earlier. Overall, GE said revenue in the three
months ended June 30 rose 3% from $29.1 billion, including a boost
from the merger of its Oil & Gas business with Baker Hughes a
year ago. GE still owns a majority stake in the combined
company.
The company stood by its 2018 earnings projection of $1 to $1.07
a share; it has said it will likely meet the lower end of that
range, and analysts currently forecast just 95 cents a share for
the year. The estimate was originally given in November when the
company revised its long-held target of $2 a share in earnings for
2018.
GE now expects adjusted free cash flow of about $6 billion for
2018, compared with a previous projection of $6 billion to $7
billion. The company still expects to end the year with at least
$15 billion in cash.
GE cut its dividend in November for only the second time since
the Great Depression, and investors are focused on its ability to
generate cash from its operations. In the latest quarter, it had
adjusted free cash flow of $258 million from its industrial
operations, a jump from the previous quarter's negative free cash
flow of $1.7 billion but down from $369 million a year ago.
The company expects restructuring costs of $2.7 billion before
taxes for 2018, Ms. Miller said.
As power struggled, profits and sales rose in GE's other two
core units, Aviation and Healthcare.
In the aviation business, which manufactures and services jet
engines, sales rose 13% and profit grew 7%. Orders at the divisions
jumped 29% as demand for its next-generation jet engines remained
strong. GE also booked more than $22 billion in new orders this
week at the Farnborough airshow in England, it said.
At Healthcare, profit rose 12% to $926 million as revenue grew
6% to about $5 billion.
Profit at GE Capital, the company's financial-services division,
dropped 20% to $207 million, while revenue fell 1% to $2.4
billion.
GE continues to contemplate shrinking both the size and risk in
the unit. The business has been a source of negative surprises for
investors and Mr. Flannery is looking for options to neutralize or
exit parts or all of the business, people familiar with the matter
say.
Write to Thomas Gryta at thomas.gryta@wsj.com
(END) Dow Jones Newswires
July 20, 2018 11:18 ET (15:18 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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