Weak Power Segment Performance Likely To Weigh On GE’s Q1 Results

by Trefis Team
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General Electric (NYSE:GE) is slated to publish its Q1 2019 results on April 30. After delivering a strong performance in Q4 2018, the industrial conglomerate is expected to report earnings of $0.10 per share, while revenues are expected to be around $27.4 billion. The company has reported mixed financial performance in the last four quarters, having recorded better-than-expected results twice and lagging estimates in the other two.

But we expect 2019 to be an overall good year for GE, and estimate a $12 fair value for its stock. The Trefis price estimate is roughly 20% ahead of the current market price. We have summarized our key expectations for the company in 2019 as a part of our interactive dashboard – How Is General Electric Likely To Have Fared In Q1? In addition, here is more Trefis Industrial company data.

Key Factors To Watch For In Q1

Power Segment’s Struggles Likely To Continue

GE’s power segment serves power generation, industrial, government and other customers worldwide with products and services related to energy production and water reuse.

  • The company’s power business has been struggling recently, with revenues falling 22% in FY 2018. This resulted in a loss of $808 million for the segment, with EBITDA margin remaining at just 3.5%. We forecast revenues for the segment to decline in the near term as continued execution and operational issues will continue to adversely impact equipment projects and transactional services. However, reorganization of the power segment into GE Gas Power and Power Portfolio should help to reduce costs and improve profitability.
  • Power markets have faced challenges over recent quarters as a significant overcapacity in the industry has led to decreased utilization of the company’s power equipment. Moreover, lower market penetration, increased price concessions, and market factors such as increasing energy efficiency and renewable energy penetration continue to adversely impact the demand for GE’s power products.

Aviation Segment Will Continue To Thrive

Aviation segment designs and produces commercial and military aircraft engines, integrated digital components, electric power and mechanical aircraft systems.

  • Aviation segment revenues grew by 13% in 2018 to $30.6 billion, and this also helped the EBITDA margin for the segment improve to the strong figure of 26.9%. These gains were primarily driven by strong momentum in the LEAP engine program. We forecast the Aviation segment revenues to increase in thanks to healthy growth in air travel globally, improved global defense and military spending, as well as increased shipments of the more efficient and cost-effective LEAP engines.
  • The segment’s profitability is also expected to slightly improve mainly due to increased price, increased volume, and higher spare engine shipments.

Renewable Energy Segment Is Likely To Experience Modest Growth

Renewable energy segment includes products and services related to onshore wind, offshore wind, hydro, LM Wind Power and accounts for nearly 10% of GE’s total revenues.

  • Renewable segment revenues increased by 4% in 2018 to reach $9.5 billion, although the EBITDA margin declined by 270 basis points to 8.1%. This segment holds decent growth potential for GE as it has a strong order backlog and stands to gain from an increase in domestic and international wind and hydro orders. We forecast the segment revenues to witness low single-digit growth in the near term with margins improving slightly.

Trefis Price Estimate

  • We expect GE’s adjusted EBITDA for full-year 2019 to be around $18.5 billion. Using this figure with our estimated forward EV/EBITDA ratio of 6 and assuming that the average number of shares for the year will be 8, this implies a price estimate of $12 for General Electric’s shares.

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