General Electric: Examining Its Power Segment in 3Q17
GE’s Power vertical in 3Q17
General Electric’s (GE) Power vertical includes its Power and Energy Connection business. This vertical accounted for 29% of the company’s $30.0 billion in revenues from its Industrial segments before corporate eliminations in 3Q17. The Power (XOP) division’s revenues totaled ~$8.7 billion, down 4% from $9.1 billion in 3Q16.
The segment’s operating income fell 51% to $611.0 million in 3Q17 from a staggering $1.3 billion in 3Q16.
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This segment was the biggest drag on GE’s 3Q17 results. GE’s Power (SO) division’s revenues were negatively impacted by the shrinking Service business market year-over-year. Plus, the weakness in its Aeroderivatives and Power Conversion units also led to the fall in its Power (DUK) segment’s revenues in 3Q17.
Jeff Bornstein, the outgoing CFO of GE, noted, “We have severely disappointed with the result of power and are taking actions to position the business going forward. This includes a refocus on the basics, significant additional cost out plans and changes to management including announcing a new Head of Power Services this week.”
Power segment order book
General Electric saw an 18% reduction in its Power business orders to $8.3 billion, and its equipment orders declined 32%. Its Power (NEE) orders fell 37%, and its Energy Connection business orders fell 25%.
The Power orders slumped due to the inclusion of a large $750.0 million order from Bahrain in 3Q16. Orders of Aero units fell 75% to nine units against 36 in 2016.
However, this trend was offset by its Gas Turbine unit orders, reaching 15 in 3Q17 against 11 in 3Q16. Service orders rose 1% to $4.4 billion in the reported quarter.
General Electric significantly slashed its Power business projections for 2017 after its 3Q17 report. Now, the company projects 80–90 AGPs (Advanced Gas Path) for 2017, substantially down from 155–165 estimated earlier. Advanced Gas Path is an upgrade solution that delivers performance and operational flexibility fueled by higher output, efficiency, and availability.
In its Aeroderivatives business, GE expects to ship 50–55 units in 2017, which is much lower than the 96 units projected earlier. The outage and other transactional services markets are anticipated to remain weak in the near term.
Next, we’ll examine GE’s Aviation division’s 3Q17 results.