General Electric’s 1Q16 orders at $23 billion
Even though the macro environment of slow growth and volatility is an ongoing concern, steady demand for products like jet engines and power turbines helped General Electric (GE) improve its order book.
New orders with General Electric
Total new orders during 1Q16 came in at $23.5 billion as of March 31, 2016. $11.0 billion were equipment orders and $12.4 billion were services orders. One year prior, new orders came in at $23.1 billion with $12.0 billion in equipment orders and $11.1 billion in services orders.
- Power and water segment orders stood at $5.6 billion, up 66% YoY. GE’s total order book for gas turbines stood at 25.
- Oil and gas equipment orders were down 44%, as customers curtailed capital expenditure due to a difficult industry environment.
- Aviation segment orders stood at $6.6 billion, which is a 12% decline in the equipment segment. GE is focusing on a partnership with Boeing (BA) in this segment.
- Healthcare orders were up 1% due to strong volumes and cost productivity.
- Transportation segment orders decreased by 56%. The segment is largely driven by locomotives. This quarter, locomotive deliveries fell and services were flat.
The company’s backlog position remains strong at $316.1 billion as of March 31, 2016.
Cost-saving measures helped GE boost its earnings
The company’s revenue was below analyst expectations by 0.7% on account of lower industrial revenue growth, largely from a 34% drop in GE’s oil and gas segment revenue and the foreign exchange impact. GE’s industrial segment margins were at 14.5% as compared to 14.6% in 1Q15. The margins inched up on the back of cost-cutting measures.
GE doubled its cost-cutting target this year to roughly $800 million, or ~$1.4 billion over two years, by laying off workers, closing some facilities, and tightening its supply chain.
GE is a part of the Industrial Select Sector SPDR Fund (XLI) and accounts for 11.7% of the total holdings. Investors in this ETF may benefit if GE surpasses its targets for 2016. 3M (MMM), Honeywell (HON), and Boeing (BA) are also among the top ten holdings of the fund. They account for 5.5%, 4.8%, and 4.4%, respectively. GE is part of the S&P 500 (SPY).
In the next part, we’ll analyze GE’s balance sheet.