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Can Power Issues Affect General Electric (GE) in Q2 Earnings?

Zacks Equity Research
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General Electric Company GE is scheduled to report second-quarter 2019 results on Jul 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 22.1% of Industrial revenues in the first quarter of 2019. Apart from the Power segment, the Industrial segment’s results include that of four other segments.

Factors to Influence Segmental Performance

The Power segment’s dismal performances over the past few quarters have been worrying General Electric. In first-quarter 2019, the segment’s revenues declined 22% year over year due to weak equipment and services sales. Orders were down 14%. Further, the segment’s operating profits declined 71%. Weakness is likely to persist as evident from General Electric’s expectation for 2019.

The company remains wary of the presence of internal and external challenges, including geopolitical tensions, growing popularity of renewable energy sources, issues with project execution, overcapacity in the industry and others. For 2019, it believes that the segment’s organic revenues will decline in a high-single digit.

For the second quarter of 2019, the Zacks Consensus Estimate for the Power segment’s revenues is pegged at $5,632 million, suggesting declines of 0.5% from the previous quarter and 25.7% from the year-ago quarter’s reported figure. Conversely, the segment’s operating results are predicted to be weak.

However, General Electric reorganized the businesses in first-quarter 2019 to revive the ailing segment. The businesses under the Power segments are now split into two units — Power Portfolio and Gas Power. While Power Portfolio comprises Grid, Nuclear, Steam and Power Conversion businesses; Gas Power includes the company’s Gas lifecycle business.   

Overall Q2 Expectations

The Zacks Consensus Estimate for the Industrial’s revenues in the to-be-reported quarter is currently pegged at $27,179 million, suggesting 6.5% growth from the previous quarter and a 5.2% decline from the year-ago reported quarter. Profits for the Industrial segment are likely to be $2,600 million, up 3.1% from the previous quarter’s reported figure and down 17.6% from the year-ago quarter’s number. (Read more: General Electric to Post Q2 Earnings: What to Expect?)

Moving Ahead

In June 2018, General Electric announced plans regarding the restructuring of the business portfolio to become a high-tech industrial company, focused on Aviation, Power and Renewable Energy. The company has taken various steps to comply with this reorganization plan.

Zacks Rank & Other Upcoming Releases

The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Some other stocks in the industry, which are likely to report their results soon, are Macquarie Infrastructure Company MIC — to report results on Jul 31; Griffon Corporation GFF — to post results on Aug 7; and HC2 Holdings, Inc. HCHC — to report results on Aug 14.

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General Electric Company (GE) : Free Stock Analysis Report
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HC2 Holdings, Inc. (HCHC) : Free Stock Analysis Report
Griffon Corporation (GFF) : Free Stock Analysis Report
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