GE, Still Weighed by Energy, Boosts Profit Amid Cost Cutting Plan -- Update

By Joshua Jamerson Features Dow Jones Newswires

General Electric Co. said Friday it boosted profit from its core industrial businesses, though it was still weighed by its oil and gas segment, amid its vow to cut costs amid investor unease over its performance.

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GE in March pledged to cut $1 billion in industrial expenses for each of the next two years, which is twice the level of cuts originally laid out by GE Chief Executive Jeff Immelt in a January earnings call. The cost-cutting was stepped up following discussions with activist investor Trian Fund Management, which The Wall Street Journal previously reported has been frustrated by missed profit goals.

GE said Friday total revenue and profit in the first quarter -- typically relatively slow for GE, which sees more business later in the year -- beat Wall Street expectations.

In recent years, the company has turned focus to its industrial businesses, shedding low-margin units like home appliances and striking a big oil-and-gas deal with Baker Hughes Inc. last fall. Still, analysts are wary that GE will reach a long-term goal of delivering $2 a share in profit in 2018.

A problem for GE during the first quarter continued to be energy. Oil-and-gas revenue fell 9% and segment profit fell 33%.

The Boston conglomerate reported several bright spots in other parts of its business, such as a 22% increase in revenue in the company's renewable-energy business, which includes wind turbine sales. Also, revenue from its largest industrial segment, which makes turbines for power plants, rose 17%. Total industrial profit operating profit rose 11%.

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Over all for the March quarter, GE reported net income of $653 million, compared with $228 million a year ago. On a per-share basis, which in the latest quarter was aided by a lower outstanding share count, GE earned 7 cents, compared to a year-ago loss of a penny. On an adjusted basis, earnings were 21 cents a share; analysts, polled by Thomson Reuters, projected 17 cents a share.

Revenue slipped 1% to $27.66 billion, topping analysts' projections for $26.41 billion.

Write to Joshua Jamerson at joshua.jamerson@wsj.com

General Electric Co.'s first quarter showed strength driven by its core industrial businesses as its oil and gas segment continued to drag on results.

Under pressure to cut costs and boost returns, the conglomerate reported higher profit and a 7% jump in organic revenue in the typically sluggish period. Organic revenue excludes currency swings, acquisitions and divestments.

Industrial orders -- which give a glimpse at future demand for equipment like jet engines, power turbines and oil-related equipment -- exceeded expectations, rising 7% excluding deals.

"GE had a good quarter in a slow growth and volatile environment," Chief Executive Jeff Immelt said on a conference call Friday. He noted the "resource sector is challenging" but painted an overall positive picture for the rest of the year. "We see global growth accelerating while the U.S. continues to improve."

GE continues to forecast full-year organic revenue growth of 3% to 5%. It also backed full-year earnings of $1.60 to $1.70 a share.

Shares, which have slipped about 4% year to date, were little changed in early Friday trading at $30.14. Shares of rival Honeywell International Inc. jumped 3% Friday morning after the diversified manufacturer reported higher profits on strength in its aerospace and energy businesses.

GE in March pledged to cut $1 billion in annual industrial expenses for each of the next two years, which is twice the level of cuts originally laid out by Mr. Immelt in a January earnings call. The cost-cutting was stepped up following discussions with activist investor Trian Fund Management, which The Wall Street Journal previously reported has been frustrated by missed profit goals.

In the first quarter, that savings only reached about $76 million but the company said it expects cuts "to ramp up as we move throughout the year."

Notably, GE reported industrial cash flow from operating activities was negative $1.63 billion, compared with positive $402 million a year ago. Citigroup analysts expected a flat performance for the period.

Chief Financial Officer Jeffrey Bornstein said the cash flow missed GE's own expectation by $1 billion but was largely related to timing of inventory and orders, and said the company remains on track for $12 billion to $14 billion by year end.

In recent years, the company has turned focus to its industrial businesses, shedding low-margin units like home appliances and striking a big oil-and-gas deal with Baker Hughes Inc. last fall. Still, analysts are wary that GE will reach a long-term goal of delivering $2 a share in profit in 2018.

A problem for GE during the first quarter continued to be its oil-and-gas business as revenue fell 9% and segment profit fell 33%. Mr. Immelt said he is "encouraged" by a 9% order increase in the segment.

Mr. Bornstein said a "large degree of uncertainty remains" around the recovery in the overall oil market as North American onshore rig counts rose 70% compared with 25% last quarter, but offshore activity has stayed weak. "Crude inventory remain at a five-year highs, and markets are closely watching OPEC output for compliance," he said.

The division, which makes equipment for petroleum exploration and production, has weighed on GE during the more-than-two-year slump in crude prices as customer cut spending. Plans to combine the business with Baker Hughes into a new majority-owned public company remain on track for mid-year.

There were several bright spots in other parts of its business, such as a 22% increase in revenue in the company's renewable-energy business, which includes wind turbine sales. Also, revenue from its largest industrial segment, which makes turbines for power plants, rose 17%. Total industrial profit operating profit rose 11%.

Overall for the March quarter, GE reported net income of $653 million, compared with $228 million a year ago. On a per-share basis, which in the latest quarter was aided by a lower outstanding share count, GE earned 7 cents, compared to a year-ago loss of a penny. On an adjusted basis, earnings were 21 cents a share; analysts, polled by Thomson Reuters, projected 17 cents a share.

Revenue slipped 1% to $27.66 billion, topping analysts' projections for $26.41 billion.

Write to Thomas Gryta at thomas.gryta@wsj.com and Joshua Jamerson at joshua.jamerson@wsj.com

(END) Dow Jones Newswires

April 21, 2017 10:35 ET (14:35 GMT)