Will General Electric’s Oil & Gas Segment Rebound in 2017?
The Oil & Gas segment in 1Q17
In this part of the series, we’ll look at the performance of General Electric’s (GE) Oil & Gas segment in 1Q17. The segment reported revenue of $3.0 billion, representing a fall of 9.0%. Its profit fell 33.0% on a year-over-year basis. Equipment revenue fell 20.0%, whereas service revenue remained unchanged.
The Oil & Gas segment’s operating profit was $207.0 million, with a 33.0% fall on a year-over-year basis. The segment’s operating margin was 6.9% in the quarter, indicating a fall of 240 basis points in 1Q17.
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GE’s Oil & Gas orders
Jeffrey Immelt, GE’s CEO (chief executive officer), started the 1Q17 conference call with robust orders in the Oil & Gas segment in the last ten quarters. In 1Q17, the company combined its turbo machinery and downstream technology business. The orders were $2.6 billion, rising 7.0% in the quarter.
The Oil & Gas segment’s equipment orders rose 30.0% on a year-over-year basis. Orders in the turbomachinery and downstream business rose 33.0%. Surface business orders were 10.0%, and subsea orders rose 52.0%. However, service orders fell 2.0%, although flat organically.
According to General Electric, the oil and gas environment has been steadily improving. The rise in activity in the North American onshore market has been promising. The rig count rose 70.0% compared to 1Q16. It rose 25.0% sequentially in 1Q17. The company has forecast exploration and production spending to be almost flat or slightly more in 2017 compared to 2016.
GE expects a challenging first half of 2017 for this segment. It further anticipates lower offshore drilling and subsea activity in 2017. However, a stabilizing Middle East should drive oil and gas sentiments in the second half of 2017.
GE is one of the top ten holdings of the Vanguard High Dividend Yield ETF (VYM), accounting for 2.8% of the fund’s total holdings. The other industrial majors included in VYM are 3M (MMM), Boeing (BA), and United Parcel Service (UPS).
Next, we’ll take a look at the performance of GE’s Healthcare segment in 1Q17.