GE’s Revenues Are Expected To Shrink 23% In 2019, But This Isn’t A Bad Thing

by Trefis Team
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General Electric (NYSE: GE) is expected to report a sharp decline in revenues for 2019 primarily due to the deconsolidation of its Oil & Gas segment. The Oil & Gas segment had revenues of $22 billion in 2018. Moreover, the company completed the spin-off and subsequent merger of its Transportation segment with Wabtec Corporation, which is expected to shave off another $4 billion from the top line. While both these moves will dent GE’s top line figure for the year, this is actually good news for the company in the long run – allowing the industrial conglomerate to focus on areas where it has fared well over recent years, like Aviation.

Trefis captures trends in General Electric’s Revenues over recent years in an interactive dashboard along with our forecast for the current year. We expect the company’s revenues to fall by nearly 23% year-over-year to $93.4 billion in 2019 due to the above-mentioned reasons despite a strong showing of Aviation and Renewable segments.

An Overview Of General Electric’s Revenues?

General Electric reported $121 billion in Total Revenues in Fiscal 2018. This included 8 revenue streams:

  • Aviation: $29.7 billion in FY 2018 (24% of Total Revenues). Aviation generates its revenues by designing and producing commercial and military aircraft engines, integrated digital components, electric power, and mechanical aircraft systems.
  • Power: $26.5 billion in FY 2018 (22% of Total Revenues). This segment generates revenues by generating power for industrial, government and other customers worldwide with products and services related to energy production and water reuse.
  • Oil & Gas: $22.2 billion in FY 2018 (18% of Total Revenues). GE holds 50.4% consolidated interest in Bakers Hughes, a full stream oilfield technology provider that generates its revenues through four main business segments: Oilfield Services, Oilfield Equipment, Turbomachinery & Processing Solutions, and Digital Solutions.
  • Healthcare: $19.2 billion in FY 2018 (16% of Total Revenues). Healthcare derives its revenues by providing essential healthcare technologies to developed and emerging markets and has expertise in medical imaging, patient monitoring and diagnostics, drug discovery, bio-pharmaceutical manufacturing technologies, and performance improvement solutions.
  • Renewable Energy: $9.3 billion in FY 2018 (8% of Total Revenues). This segment generates revenues by providing affordable renewable energy to people across the world
  • GE Capital: $9.3 billion in FY 2018 (8% of Total Revenues). GE Capital generates revenues by providing financial products and services to GE’s other business segments.
  • Transportation: $3.8 billion in FY 2018 (3% of Total Revenues). This segment generates revenues by supplying transport-related equipment to the railroad, mining, marine, stationary power and drilling industries.
  • Lightning: $1.7 billion in FY 2018 (1% of Total Revenues). This segment includes GE Lightning business which generates revenues by providing energy efficiency and productivity solutions for commercial, industrial and municipal customers.

Changes In GE’s Top Line In The Near Future Will Be Driven By Its 3 Core Segments:

1. Aviation Segment Is General Electric’s Crown Jewel And Will Be The Primary Growth Driver

  • Aviation is the company’s most valuable business – accounting for roughly 25% of the company’s revenues, and almost 45% of its operating profit in 2018. We expect the segment to continue to achieve steady growth in 2019, with the segment’s revenue increasing by 8% to $32 billion.
  • This growth is likely to be led by higher commercial engine growth and continued momentum in the LEAP engine program. LEAP engines have been the largest growth driver for the company’s Aviation division with GE shipping over 1,100 CFM International LEAP engines in 2018.
  • Moreover, 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 are likely to further aid the segment’s growth.

2. Power Segment Revenues Will Continue To Decline

  • Power is General Electric’s second-largest division – accounting for more than 20% of the company’s revenues. The company’s power business has been struggling of late, with revenues shrinking 22% in FY 2018. Power markets have faced challenges as a significant overcapacity in the industry has led to reduced utilization of the company’s power equipment.
  • Although the segment has shown signs of operational improvement so far this year, we expect the segment’s revenues to decline by 20% to $21 billion in 2019.
  • Market factors such as increasing energy efficiency and growing share of renewable energy sources will continue to weigh on the demand for GE’s power products in the near term.

3. Healthcare Segment Should Continue To Grow At A Brisk Pace

  • The Healthcare segment has achieved steady growth since 2016 – adding more than $1.5 billion to total revenue at an average annual rate of 4.3%.
  • We expect the Healthcare segment’s revenues to remain flat in 2019 as strong growth in Life Sciences is likely to be offset by soft showing in the Healthcare systems.
  • Notably, the segment’s contribution to total revenues is expected to increase from 16% in 2018 to nearly 21% in 2019 primarily due to the loss of the Oil & Gas segment.

 

Additional details about the revenue trends in GE’s Renewable, Oil &Gas, Capital and Lightning segments are available in our interactive dashboard.

Per Trefis estimates, GE’s adjusted EPS for 2019 is likely to be $0.46. Taken together with a P/E multiple of 25x, this works to a fair value of $12 for GE’s stock which is around the current market price.

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