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Dismal 2Q17 Results Drag General Electric into Murky Waters

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Part 4
Dismal 2Q17 Results Drag General Electric into Murky Waters PART 4 OF 10

Why GE’s Power Revenue Registered Growth in 2Q17

Power segment in 2Q17

General Electric’s (GE) Power (XOP) segment was the largest contributor to its total operating revenue in 2Q17. The segment accounted for 24.8% of GE’s $28.0 billion in industrial revenue before corporate eliminations in the quarter. The segment’s revenue rose 5% to ~$7.0 billion, compared to $6.6 billion in 2Q16.

In the quarter, GE’s Power segment reported an operating profit of $1.0 billion, a fall of 10% compared to 2Q16. The segment’s operating margin contracted 2.4% to 14.8%, compared to 17.2% in 2Q16.

Why GE&#8217;s Power Revenue Registered Growth in 2Q17

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If we look more closely at the Power (SO) segment’s revenue, we’ll see that its equipment revenue rose 12% in 2Q17. Higher revenue from gas power systems and increased heat recovery steam generator shipments in the quarter led the equipment revenue rise. However, lower gas turbine shipments negatively affected the rise in equipment revenue.

The segment’s service revenue rose 1% in the quarter. Service revenue was almost flat due to lower outages and fewer advanced gas paths (or AGP). General Electric has rolled out AGPs for its 9E and 9F turbines. The company has combined the physical upgrade with new control software.

Power orders

The Power (DUK) segment’s orders totaled $7.7 billion, a fall of 1%, in 2Q17. However, excluding the large halcyon steam order in 2Q16, Power orders rose 11%. Equipment orders fell 1%. Gas power systems revenue rose 26% due to higher H turbine orders in the quarter. The H backlog totaled 33 units. HRSG orders rose 100% to ten generators in 2Q17.

GE’s power outlook

General Electric was upbeat about its Power segment’s outlook in 1Q17. However, due to sluggish oil and gas (UNG) business, the company expects a weak market for power in 2H17. GE received nine H turbine orders in 2Q17. The company also registered the largest services deal in the Power segment’s history in the form of a $3.0 billion deal with Sonelgaz in Algeria.

GE expects power (NEE) demand to be ~40 gigawatts in 2017, a fall of 10% from 44 gigawatts in the previous year. The company also expects sluggish demand for power in 2018. It aims to ship 100–105 gas turbines in 2017. It also noted that overcapacity in new product launches could continue to affect the power market.

Coming up next, we’ll take a look at GE’s Healthcare segment’s 2Q17 performance.

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