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Disappointing 3Q17 Results Force General Electric to Cut Guidance

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Part 5
Disappointing 3Q17 Results Force General Electric to Cut Guidance PART 5 OF 10

Inside the 3Q17 Results of General Electric’s Oil & Gas Segment

General Electric’s Oil & Gas segment

After merging with Baker Hughes, General Electric’s (GE) Oil & Gas segment is the new Baker Hughes, a GE Company (BHGE). This segment is the third-largest contributor to GE’s total Industrial revenues of $30.0 billion. 

In 3Q17, BHGE reported revenues of $5.3 billion, up 81% from 3Q16. However, GE’s legacy Oil & Gas unit revenues declined 5% on a YoY (year-over-year) basis. The segment’s operating profit fell 35% to $231.0 million on a consolidated basis. 

Inside the 3Q17 Results of General Electric’s Oil &amp; Gas Segment

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The standalone GE Oil & Gas vertical’s operating income slumped 69% in 3Q17 compared to 3Q16. The operating margin shrank 7.6%, touching 4.3% in 3Q17.

GE owns 62.5% of BHGE, resulting in the consolidation of 100% of BHGE’s orders, revenues, and operating cash inflows. The Oil & Gas segment’s operating profit and net income is net of the 37.5% minority interest representing Baker Hughes’ Class A shareholders. As a result, GE’s 62.5% of profit differs from BHGE’s operating income figures.

Oil & Gas orders in 3Q17

For GE, the Oil & Gas (HAL) orders on a combined business basis (legacy and Baker Hughes) rose 18%. In 3Q17, oilfield equipment orders rose 45% to $760.0 million. Digital Solutions rose 43% to $917.0 million in the reported quarter. 

The Oilfield services orders rose 8% to $2.6 billion, and its Turbomachinery & Process Solutions orders rose 16% to $1.4 billion.

Management insights

On July 3, 2017, General Electric finished the integration of the GE Oil & Gas unit and Baker Hughes, resulting in Baker Hughes, a GE company. BHGE is the world’s first full-stream oil and gas (SLB) (UNG) company. The company signed the first full-stream agreement with Twinza to support an offshore project in Papua New Guinea. Also, BHGE received a subsea contract for Phase Two of the Zohr Gas Field.

According to BHGE, the 3Q17 growth in North American onshore could remain flat in 4Q17. The company also expects flat growth in the international space with some signs of improvement in that quarter. BHGE anticipates delays in the subsea projects to continue along with the oversupply in the LNG market.

In the next part, we’ll assess GE Healthcare division’s performance in 3Q17.

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