GE Earnings A Mixed Bag

Industrial giant General Electric (NYSE:GE) has reported fourth quarter earnings. GE’s earnings were mixed with the company topping profit estimates but falling below revenue expectations. GE reported revenue of $33.89B, 1.4% Y/Y growth but substantially lower than the consensus of $35.92. GE reported a huge 22% jump in profit to $6.28B, or EPS of $0.64. Adjusted earnings clocked in at $0.52, exceeding the consensus of $0.49.

The main highlight of the earnings report, however, was GE’s core industrial segment. GE is fast moving back to its core industrial business through a mixture of divestitures and acquisitions. The company reported that its industrial segment posted a 7.8% decline in operating profits to $5.5B, with declines across all its sub-segments except the aviation and transportation businesses. Low oil and gas prices are to blame for the poor performance by this key segment. GE’s oil and gas unit posted a huge 16% decline in revenue in Q4 and 14% for the entire year to $16.45B.

Other than the oil and gas profit drag, other growth metrics here were good: industrial margins expanded 80 basis points, while 2015 industrial CFOA (Cash from Operating Activities) increased 8% to $16.4B.

There is a likelihood that GE might decide to shed some of its oil and gas businesses in the near future. The company announced that it has doubled its 2016 restructuring budget from the $1.7B it announced last month to $3.4B with an emphasis on oil and gas operations as it looks to combat the effects of low oil and gas prices. The oil and gas business is currently GE’s fourth largest (12.8% of overall revenue), and a divestiture of some of its businesses here would likely result in a significant contraction in the company’s revenue. This is however a short-term effect.

2016 Outlook

The general outlook for GE’s industrial segment sans oil and gas is good. GE’s industrial orders grew 3% organically to $32.5B while order backlog grew 18% organically during the quarters and now stands at $315B. The Power unit, GE’s largest sub-segment, saw organic orders jump 29%.