GE Cuts Sales Outlook as Oil Woes Crimp Manufacturing Shift

  • Company sees organic revenue flat to up 2 percent this year
  • Third-quarter earnings beat analysts’ estimates; sales miss

GE, Honeywell Face Hurdle of Slow Economic Growth

General Electric Co. may not grow this year as low oil prices, a strong dollar and a sluggish economy crimp demand for oilfield equipment and locomotive parts, a setback for Chief Executive Officer Jeffrey Immelt as he pursues a sharpened focus on manufacturing.

The stock fell after GE cut its outlook for organic sales growth, projecting the figure would be flat to up 2 percent this year. GE previously forecast an increase of as much as 4 percent.

GE is struggling to demonstrate the benefits of a corporate transformation in which Immelt has refocused on making power turbines, jet engines and oilfield equipment while selling off financial and consumer operations. GE rallied last year, but the stock has been weak in 2016 as investors question whether the company can sustain the momentum amid global headwinds.

“GE’s stock has suffered from increasing investor skepticism heading into the quarter,” Steven Winoker, an analyst at Bernstein, said in a note. “While growth this quarter inflected positive, it was below our expectations, and the lowered organic growth guide for the year again calls into question the company’s ability to hit” fourth-quarter targets.

The shares dropped 0.3 percent to close at $28.98 in New York, paring losses after a decline of as much as 2.5 percent. GE has fallen 7 percent this year, compared with a 4.8 percent rise in the Standard & Poor’s 500 Index.

Earnings Beat

Third-quarter adjusted earnings rose to 32 cents a share, topping the 30-cent average of analysts’ estimates compiled by Bloomberg. Sales climbed 4.4 percent to $29.3 billion, falling short of an average prediction of $29.6 billion.

“Notwithstanding a really tough macroeconomic backdrop, I thought the performance in the quarter was pretty good,” Chief Financial Officer Jeff Bornstein said in a telephone interview. Excluding the oil and gas unit, “our organic revenue growth was up 6 percent in the quarter, 4 percent year to date.”

Orders increased 16 percent in the third quarter as GE looked to pad its backlog and recover from a weak first half. The figure fell 6 percent on an organic basis, which excludes the effects of acquisitions and currency exchange, as oil and transportation demand declined.

The order tally was “a little bit better,” but GE has struggled to generate growth this year, Karen Ubelhart, an analyst at Bloomberg Intelligence, said on Bloomberg Television. Given the first-half results, trimming the organic revenue forecast makes sense, she said.

GE narrowed its earnings guidance to $1.48 to $1.52 a share from a range of $1.45 to $1.55. GE said foreign-exchange effects will hurt earnings by as much as 6 cents a share this year.

Oil Decline

Sales in the oil and gas unit fell 25 percent in the quarter, the most in the company’s industrial divisions, as GE navigated the enduring slump in the global crude market.

“Our outlook for oil and gas has worsened,” Immelt said in a conference call, adding that the company has a “realistic” view about the industry. “But don’t be mistaken: We still think this is a core GE business.”

Revenue climbed 37 percent in the power division and increased 5 percent in GE Aviation. GE Healthcare sales rose 5 percent as orders jumped 6 percent organically, logging its third straight quarter of earnings and revenue growth.

Digital and software orders rose 11 percent, GE said. The company sees software operations as a business that can enhance the value and productivity of industrial equipment.

Stock Repurchase

GE on Friday boosted its share buyback to about $22 billion from $18 billion. The company has also pursued several small acquisitions in recent months to bolster its digital business, supply chain and manufacturing capabilities. The company said last week it would buy LM Wind Power, a maker of turbine blades, for $1.65 billion.

GE also is seeking shareholder approval to buy a pair of 3-D printer companies, Sweden’s Arcam AB and Germany’s SLM Solutions Group AG, for a combined $1.4 billion. GE said Friday that it wouldn’t raise its price for SLM after shareholder Elliott Management Corp., the hedge fund founded by billionaire Paul Singer, called the terms unacceptable.

For more on GE’s clash with Singer click here.

During the quarter, the 124-year-old company relocated its headquarters to Boston from a longtime suburban home in Fairfield, Connecticut, a move intended to bolster its image as a tech-savvy firm and help recruit engineering talent.

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