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Will Power Segment Hurt General Electric's (GE) Q2 Earnings?

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General Electric Company (GE - Free Report) is scheduled to report second-quarter 2018 results on Jul 20, before market open. The company’s GE Power segment might feel the heat from difficult macroeconomic conditions.

In terms of corporate revenues, GE Power is the largest business unit of the company — accounting for 25.2% of revenues in first-quarter 2018.

Segment’s Q1 Performance, Estimates

GE Power’s performance in first-quarter 2018 was weak on a year-over-year basis, with revenues down 7%, primarily due to the lower demand for turbines. Orders declined 29.1% while backlog fell 1.9%. Interestingly, the segment’s top-line surpassed the Zacks Consensus Estimate by 9.17% in the first quarter. It is worth noting here that the segment pulled off a positive average surprise of 13.7% in the past four quarters.

For the second quarter of 2018, the Zacks Consensus Estimate for GE Power revenues is pegged at $7,285 million, above $7,222 million recorded in the previous quarter and $6,969 million generated in the year-ago quarter.

However, GE Power has been a drag on earnings in the last few quarters. The company predicts weakness in new gas orders, increasing popularity of renewable energy sources, overcapacity, macroeconomic challenges and geopolitical tensions to take a toll on its performances, while the cost reduction actions are anticipated to bring in some relief.

The Zacks Consensus Estimate for GE Power segment’s profit is pegged at $398 million, down from $1,031 million in the year-ago quarter. The most concerning issue is that the segment lagged estimates in the past four quarters, the average being a negative 40.72%.

Overall Q2 Expectations

The Zacks Consensus Estimate for the Industrial segment revenues in the to-be-reported quarter is currently pegged at $28,009 million, reflecting growth of 2.2% from the previous quarter’s figure of $27,395 million. The profit for the industrial segment is likely to increase 21.9%, sequentially, to $3,262 million. (Read more: General Electric to Report Q2 Earnings: What to Expect?)

Moving Ahead

Last month, the company disclosed its plans to restructure its business portfolio, enabling it to become a high-tech industrial company. Its prime area of focus will be its Aviation, Power and Renewable Energy businesses. The company anticipates realizing corporate savings of more than $500 million by 2020, resulting from the implementation of the new GE Operating System. Moreover, for its Industrial business, the company intends on reducing debt by $25 billion by 2020.

Other stocks from the industry that are likely to report their second-quarter 2018 earnings soon include 3M Company (MMM - Free Report) , Honeywell International Inc. (HON - Free Report) and United Technologies Corporation . While Honeywell International will release results on Jul 20, both 3M Company and United Technologies will report on Jul 24.

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