Why General Electric’s Transportation Revenue Fell in 2Q17



Transportation revenue

In this article, we’ll examine General Electric’s (GE) Transportation segment. In 2Q17, the segment’s revenue fell 14% to $1.1 billion, compared to $1.2 billion in 2Q16. This segment’s share was the lowest of the company’s total industrial revenue in the quarter.

Along with its revenue, the segment’s operating income fell 26% to $203.0 million in 2Q17. The segment’s operating margin was 19% in the quarter, a contraction of 3% from 22% in 2Q16.

General Electric shipped 120 locomotives in 2Q17, compared to 222 locomotives in 2Q16. The 77% slump in North American shipments were partially offset by 34% higher international volumes.

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Transportation orders in 2Q17

Transportation orders were $830.0 million in 2Q17, reflecting a rise of 22%. On a sequential basis, order growth was much lower in 2Q17. The segment’s equipment orders totaled $231.0 million, a rise of 100%, due to international demand for 26 locomotives. Its service orders were $600.0 million, a rise of 7% year-over-year. Robust growth in locomotive parts and mining led the rise in service orders.

Management insights

Overall North American carloads (UNP) rose 4.5% in 1H17. A further breakdown suggests that while the number of carloads rose 6.4%, intermodal traffic rose 2.7%. However, the pace of growth has been much slower compared to earlier years.

General Electric foresees challenges in the North American locomotive market (TRN) in 2017 and 2018. The company also expects a 50% fall in locomotive shipments in the current year. 

GE has focused on international growth (GWR) in the Transportation segment. At the end of 2Q17, the company received a $575.0 million order in Egypt for 100 locomotive-plus services. GE may go ahead with cost-curtailment measures in the segment owing to unfavorable market conditions.

ETF investment

GE tops the holdings of the Industrial Select Sector SPDR ETF (XLI). If you’re keen on exposure to industrials stocks, you can consider investing in XLI. Industrial bigwigs such as 3M Company (MMM), Boeing (BA), and Honeywell International (HON) are included in the ETF’s top holdings.

Next, we’ll look at GE’s Energy Connections and Lighting segment.


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