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General Electric (GE) Holds Promise Despite Supply-Chain Woes

·5 min read

General Electric GE is benefiting from strong performance of the Aerospace and Healthcare segments. Continued recovery in the commercial market bodes well for the Aerospace unit. Robust consumer demand is driving orders in the segment. Significant growth in commercial services and continued strength in spare parts sales are boosting segmental revenues. The Healthcare segment is benefiting from Imaging, Ultrasound and HTS services sales. Strong order demand in the Healthcare segment is expected to continue to drive revenues. The company expects mid-single digit revenue growth in the Healthcare segment for the full year.

General Electric’s investments in innovation and productivity improvement should fuel its growth. In the Power segment, the company is investing in gas and steam services productivity. Development of new products and investments in research and development should drive the company’s growth going forward. Cost-control measures and pricing actions to tackle inflationary pressure are supporting the bottom line.

General Electric’s portfolio reshaping actions have been benefiting it over time. The company has been acquiring businesses to expand operations while simultaneously divesting non-core operations to direct resources to key areas of growth. In January 2022, the company completed the acquisition of Opus One Solutions Energy Corporation. The Opus One buyout enhances GE Digital’s capabilities to support the use of renewable and distributed energy resources. General Electric’s acquisition of BK Medical in December 2021, GE Healthcare’s buyout of the Transformer Solutions business of SPX Corporation in October 2021 and Zionexa in May 2021 are also worth mentioning. The company divested the GE Capital Aviation Services business in November 2021, the lighting business in July 2020, the BioPharma business in March 2020 and GE Transportation in February 2019. Benefits from restructuring initiatives are aiding the company’s bottom line.

Among other conglomerates, 3M MMM is divesting several of its non-core businesses to focus on key areas of growth. In July, the company entered into an agreement to sell its Neoplast and Neobun brands to Selic Corp. 3M will also divest the manufacturing assets of its Ladlumkaew, Thailand, facility to Selic Corp. The divestitures are expected to be completed in the fourth quarter of 2022. In fourth-quarter 2021, it entered into a deal to divest its food safety business. The transaction is expected to be completed in September 2022. In March 2022, it sold its floor care products business.

In April 2022, 3M acquired technology assets of LeanTec. The acquisition strengthens the company’s ability to deliver a more connected, digital bodyshop solution via its RepairStack Performance Solutions.

Carlisle Companies CSL is solidifying its portfolio through successive acquisitions. In February 2022, the company acquired MBTechnology, Inc., strengthening the Carlisle Construction Materials (“CCM”) segment’s building products platform and boosting its energy-efficient solution offerings.

In September 2021, Carlisle completed the acquisition of California-based Henry Company, which boosted the CCM segment's product offerings for repair and restoration works as well as construction activities. The company expects the Henry buyout to boost its 2022 earnings by $1.50 per share. Acquisitions had a contribution of 15.5% to revenue growth in the second quarter of 2022.

Coming back to General Electric, the company announced that it would split its businesses into three independent companies — comprising GE Healthcare (to be completed in early 2023), GE Aviation, and the combined operations of GE Digital, Renewable Energy, and GE Power (to be complete in early 2024). The separation has been structured as tax-free spin-offs and is intended to strengthen the operating performance and the financial position. General Electric will operate as an aviation-focused company starting in early 2024.

GE’s commitment to reward its shareholders through dividends and share buybacks is encouraging. In March 2022, GE’s board of directors authorized the share repurchase program of up to $3 billion. The company bought back approximately 4.6 million shares for $0.3 billion in the second quarter under this authorization. In the first quarter, the company paid out dividends worth $140 million to shareholders compared with $148 million in the year-ago period.

However, supply-chain disruptions, including labor and material shortages and high logistics costs are hurting General Electric’s operations. Supply-chain disruptions are impacting deliveries in the commercial engine, thus hurting revenues. Also, lockdowns in China are affecting growth in the Healthcare segment.

Weakness in GE’s Power and Renewable Energy segment is concerning. Lower orders due to softness in shipment volumes are hurting revenues at the Power segment. The segment’s revenues declined 6% year over year in the first half of 2022. Lower U.S. onshore volumes and continued pressure from onshore North America market dynamics are weighing on orders in the Renewable Energy segment. Revenues in the segment fell 18% in the first half of 2022.

Geographical diversification helps General Electric’s businesses to flourish. However, the diversity exposes the company to geopolitical issues and unfavorable foreign currency movements. In second-quarter 2022, forex woes had adverse impacts of $450 million on adjusted revenues.

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