Can Aviation And Renewables Drive Growth For GE In Q2?

by Trefis Team
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General Electric‘s (NASDAQ: GE) history of controversial accounting and mixed results with acquisitions hit it hard in 2017. The negative sentiment continues to hover over the company, as its stock fell below $13 earlier this year (down from nearly $30 in early 2017) before a modest recovery. The company is taking bold steps to simplify its business and its turnaround could take some time and will depend on an improving business environment and global growth, and accordingly, we expect GE to report mixed results in the next few quarters. GE is expected to publish its Q2 2018 results on July 20, reporting on what is likely to be another mixed quarter for the company. Over Q1 2018, Power segment revenues declined by about 9% year-over-year, as a result of lower demand for its gas turbines, and it’s possible that the trend will continue in Q2. Continued headwinds in the power segment should also dampen Q2 earnings. Below, we take a look at what to expect when GE reports its Q2 earnings.

We have a price a $17 price estimate for General Electric, which is higher than the current market price. The charts have been made using our new, interactive platform. You can click here to modify the different driver assumptions, and gauge their impact on the earnings and price per share metrics.

Factors That May Impact Future Performance

The Aviation segment enjoyed a strong Q1, as margins improved as a result of higher pricing on commercial engines and aftermarket materials and cost efficiency. This was largely driven by increased demand for LEAP engines, commercial and military spare parts and cost efficiency. GE is one of the leading players in the aviation segment and is well positioned to increase its share over time. The Aviation segment holds substantial growth potential for GE, as a result of the increasing demand for its LEAP engines and global defense and military spending.

The Renewable segment reported revenue of $1.6 billion (down 7% y-o-y) in Q1, driven by lower onshore wind turbine orders. However, the acquisition of LM Wind Power bolstered the segment in Q1 and we believe it should provide reasonable growth opportunities. GE is one of the leading players in the renewable energy segment and is well positioned to increase its share over time. The Renewable Energy segment holds decent growth potential for GE, as a result of the increasing domestic and international wind and hydro orders. We expect the segment’s tailwinds to provide decent medium-term growth opportunities driven by strong growth in the domestic and international onshore wind and hydro orders, and offshore wind orders.

The market for high-end gas turbines has been fairly weak, largely due to the growth of renewable energy, and GE expects challenging power markets to continue into 2018. We expect the 2018 revenue in this segment to decline by nearly 7% to $32.8 billion.

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