Foreign exchange negated Alstom’s $0.1 earnings per share in 2Q16
The Alstom acquisition closed 18 months after it was announced, so it didn’t contribute to General Electric’s (GE) 1Q16 revenue. But in 2Q16, EPS (earnings per share) of $0.1 faced a foreign exchange impact of -$0.01. Management expects that Alstom is on track to achieve EPS of ~$0.05 in 2016. Alstom’s orderbook stands at $2.9 billion, of which Power accounts for $1.7 billion, Renewable Energy accounts for $0.1 billion, and Grid accounts for $1.1 billion.
By 2018, management expects additional earnings of $0.15–$0.20 from the deal. GE believes that it will achieve $3 billion in synergies by 2018.
GE is a part of the Industrial Select Sector SPDR Fund (XLI) and accounts for 11.2% of the fund’s total holdings. Investors in this ETF may benefit if GE achieves its planned synergies from the deal.
General Electric-Alstom business synergy
While GE is the world leader in gas turbines, it lags behind rivals in steam turbine technology. However, Alstom has a large presence in steam turbines. GE expects Alstom’s expertise will be handy in gaining an edge in combined cycle gas plants, which typically employ gas turbines as well as steam turbines. The deal should also increase GE’s installed thermal asset base by 50% to 1,500 gigawatts, increasing opportunities for the service business. GE acquired the power business of French manufacturer Alstom on April 30, 2014.
To trade in industrials, you can look into the Fidelity MSCI Industrials Index ETF (FIDU) and the iShares Morningstar Large-Cap Value ETF (JKF). FIDU’s top holdings are GE at 12.9%, 3M (MMM) at 4.6%, Honeywell International (HON) at 3.7%, and United Technologies (UTX) at 3.5%.
In the next part of this series, we’ll cover analysts’ expectations for General Electric in 2016.