Key Takeaways From General Electric’s Q4

by Trefis Team
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General Electric (NYSE: GE) reported below the par earnings this week. The U.S. conglomerate ended a subdued 2017 with earnings that were below expectations for the fourth quarter. The top line for the fourth quarter fell by 5% year-on-year to $31.4 billion, while the company’s diluted GAAP earnings fell sharply from profit of 39 cents to a loss of $1.13. Soft performance across the power, oil & gas, and transportation divisions has impacted GE’s Q4 earnings, missing consensus revenue estimates by nearly $2.7 billion. Below, we have summarized the major takeaways from General Electric’s Q4 earnings using our interactive dashboard.

Power, Transportation, Oil & Gas Underpin The Overall Performance

The power segment accounts for nearly 26% of the overall revenue and was down 15% year-on-year to $9.4 billion in Q4’17. The softness of this segment was primarily due to the overall performance of the power market and lower shipments of aeroderivative products. Further, GE was hit hard by the shift in demand in the electricity industry towards renewables away from its traditional gas-fired plants. GE expects market pressure to continue into 2018 and potentially be worse than expected.

The transportation segment revenue remained fairly stagnant throughout the year and fell by 20% in Q4 to $1 billion, primarily driven by lower locomotive volume largely due to the slowdown in the North American market. Growth in this segment is purely dependent on the performance of both the North American rail market and international market. New CEO John Flannery confirmed that GE could do away with its transportation segment over the next two years.

The oil & gas segment reported revenue of $5.8 billion (+69% y-o-y), driven by the effects of the Baker Hughes transaction. The segment, after adjusting for the Baker Hughes transaction, was down 13% year-on-year, driven by weakness in the oil and gas market. We are optimistic about 2018, as oil prices continue to push U.S. production to new heights.

Strong Performance In Aviation and Healthcare

The aviation and healthcare segments proved to be sources of respite for GE. The revenues from the aviation segment remained flat at $7.2 billion and margins for the segment rose to 25% (+40 basis points y-o-y), primarily due to improved service and military volume and mix. We expect the aviation segment to grow further in 2018 driven by global defense and military spending and continued efficiency in the LEAP (Leading Edge Aviation Propulsion) engine. Consequently, the production costs are expected to fall by 23% in 2018 compared to 2017. This should help aid a potential margin recovery for GE.

The healthcare segment reported revenue of $5.4 billion, an increase of 6% year-on-year in Q4’17, driven by the higher equipment and services volume, and favorable market conditions. We expect the favorable market dynamics to continue into 2018, primarily driven by emerging markets.

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