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GE to Report Q4 Earnings: Will Power Segment Issues Hurt?

Zacks Equity Research

General Electric Company GE is scheduled to report fourth-quarter 2018 results on Jan 31, 2019, before the market opens.

The Power segment — engaged in the production of gas, steam and aero derivative turbines; generators; and combined cycle systems — accounted for 20.1% of Industrial revenues in the third quarter. Apart from the Power segment, the Industrial segment results include that of six other segments.

Once a major growth driver, the Power segment is currently grappling with difficult macroeconomic conditions.

Segment’s Q4 Performance, Estimates

In the third quarter of 2018, the Power segment’s revenues declined 33% year over year to $5,739 million. Orders were weak, down 18%, and backlog fell 5.8% to $93.7 billion. Also, its profit margin dipped by 16.4 percentage points. This segment’s dismal performance has been one of the prime reasons for General Electric’s poor third-quarter results.

It is worth mentioning here that the Power segment’s third-quarter revenues lagged the Zacks Consensus Estimate of $5,969 million by 3.86%. Its average sales surprise for the last four quarters was a positive 4.89%.

General Electric predicts that difficulties related to project execution, operational issues and lower market penetration will pose threat to the Power segment’s performance in the quarters ahead. In addition, geopolitical tensions, growing popularity of renewable energy sources, macroeconomic challenges and overcapacity in the industry are other prevailing headwinds.

For the fourth quarter of 2018, the Zacks Consensus Estimate for revenues for the Power segment is pegged at $6,711 million, below $9,421 million generated in the year-ago quarter. Conversely, the segment is predicted to report operating loss of $345 million compared with operating earnings of $260 million recorded in the year-ago quarter.

Overall Q4 Expectations

The Zacks Consensus Estimate for revenues of the Industrial segment in the to-be-reported quarter is currently pegged at $30,987 million, reflecting decline of 3.8% from the previous year’s figure of $32,214 million. Profit for the Industrial segment is likely to decrease 10.9% year over year to $3,156 million. (Read more: General Electric to Post Q4 Earnings: What’s in Store?)

Moving Ahead

In June 2018, General Electric announced plans about restructuring the business portfolio in a bid to become a high-tech industrial company focused on Aviation, Power and Renewable Energy.

Also, the company’s CEO, H. Lawrence Culp Jr. chalked out a reorganization plan for the ailing Power segment in October 2018. The segment’s businesses will likely be split into two. The first will comprise of gas product and services groups, and the second will include steam, grid solutions, power conversion and nuclear businesses.

This plan is likely to bring in some relief to General Electric. This company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other stocks in the industry, which are likely to soon report their October-December quarter results soon, are Honeywell International Inc. HON, Carlisle Companies Incorporated CSL and Griffon Corporation GFF. While Honeywell International will report numbers on Feb 1, Carlisle Companies will post results on Feb 7 and Griffon on Jan 30.

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