GE Oil Unit to Crimp Quarterly Profit as Finance Sale LoomsRichard Clough
Lower crude-oil prices have hurt General Electric Co.’s sales of drilling and processing equipment, first-quarter results due Friday probably will show.
Sales in GE Oil & Gas, the company’s third-largest industrial division, may fall 11 percent, according to Sanford C. Bernstein & Co.’s Steven Winoker, who has the highest Bloomberg Absolute Return Rank among analysts covering the company. A drop of that size could lead GE to change its full-year forecast for the unit’s sales, which now calls for a decline of as much as 5 percent.
“Oil and gas will be weaker than expected, for sure,” said Scott Davis, an analyst with Barclays Plc. “If it’s not weaker on the operating line, I think it’s going to be weaker on the orders.”
The crude slump underscores the risks in GE’s tilt toward industrial operations, from oilfield equipment to gas turbines to jet engines. Chief Executive Officer Jeffrey Immelt accelerated that shift last week with a sweeping plan to sell about $200 billion of assets from the GE Capital business that destabilized the parent company during the financial crisis.
GE profit in 2015’s first three months may have fallen to 30 cents a share, the average of eight analysts surveyed by Bloomberg. The company had per-share profit of 33 cents a year earlier. The analysts project sales to remain unchanged at $34.2 billion.
The shares fell 0.7 percent to $27.28 at the close in New York.
GE notified regulators during the quarter of plans to cut as many as 575 jobs from its Lufkin division, which makes oilfield pumps. The move reverses what had been sizable growth in GE Oil & Gas after the Fairfield, Connecticut-based company spent more than $10 billion in the past five years on oil-related acquisitions.
As GE reports the quarter’s earnings, investors may pay close attention to the company’s cost-reduction efforts and moves to boost profit margins in the industrial units, Davis said. He also said he expected the aviation and power generation businesses to be “a little stronger” in the first quarter.
By 2018, after the sale of the bulk of the finance operations, GE plans for its manufacturing units to account for more than 90 percent of earnings, an increase from 58 percent last year. The GE Capital overhaul includes the disposal of about $27 billion in real estate assets, a $50 billion buyback program and a pledge to repatriate offshore earnings. The moves will result in an aftertax charge of $16 billion in the first quarter, GE said.
The announcement of the asset sales sent the stock surging 11 percent on April 10, the largest one-day gain in more than five years. The plan “could provide cover” for the oil and gas slump, said Shannon O’Callaghan, an analyst with UBS Securities LLC. GE has maintained its underlying 2015 performance is on track, so it could be beneficial to have the attention shifted elsewhere, he said.
“It’s not like we’re going to ignore oil and gas -- it still matters -- but at least we’re going to have a more balanced analysis,” O’Callaghan said.