10-QPeriod: Q3 FY2017

GENERAL ELECTRIC CO Quarterly Report for Q3 Ended Sep 30, 2017

Filed October 30, 2017For Securities:GE

Summary

General Electric Company (GE) reported its third-quarter 2017 financial results, showing consolidated revenues of $33.5 billion, a 14% increase year-over-year, largely driven by the Baker Hughes transaction and a gain from the sale of its Water business. However, excluding these items, revenues saw a modest 1% decline, primarily due to weakness in the Power and Oil & Gas segments, with organic industrial revenues down 1%. Net earnings attributable to GE common shareowners decreased to $1.8 billion, impacted by significant restructuring and impairment charges totaling $2.4 billion, including goodwill impairment in the Power Conversion business. Leadership changes were a notable development, with John L. Flannery succeeding Jeff Immelt as CEO in August 2017, and Jamie S. Miller appointed CFO effective November 1, 2017. The company is actively managing a portfolio transformation, including plans to exit $20 billion in assets over the next one to two years. This includes the announced sale of the Industrial Solutions business. GE Capital continues its exit plan, with dividends to GE decreasing significantly year-over-year. The company faces ongoing challenges in its Power segment, particularly with service volumes and equipment shipments, while Aviation and Healthcare showed positive revenue growth. The company's credit ratings were placed on negative outlook by S&P and Fitch, reflecting concerns about future performance and restructuring efforts.

Financial Highlights

46 data points
Beta

Revenue

$30.66B

45.2% Gross Margin

Net Income

$1.36B

4.4% Net Margin

EPS (Diluted)

$1.20

Total Assets

$378.04B

Cash & Equivalents

$40.45B

Free Cash Flow

-$921.00M

Financial Statements
Beta
Revenue$30.66B
Cost of Revenue$16.82B
Gross Profit$13.85B
SG&A Expenses$4.74B
Operating Expenses$32.08B
Operating Income$2.58B
Net Income$1.36B
EPS (Basic)$1.20
EPS (Diluted)$1.20
Shares Outstanding (Basic)1.08B
Shares Outstanding (Diluted)1.09B

Key Highlights

  • 1Consolidated revenues increased 14% to $33.5 billion, driven by acquisitions (Baker Hughes) and divestitures (Water business sale), but organic industrial revenue declined 1%.
  • 2Net earnings attributable to GE common shareowners decreased 10% to $1.8 billion.
  • 3The company incurred significant restructuring and other charges of $2.4 billion, including a $0.9 billion goodwill impairment charge in the Power Conversion business.
  • 4Key leadership transitions occurred with John L. Flannery becoming CEO and Jamie S. Miller appointed CFO.
  • 5The Power segment experienced a 4% revenue decline and a 51% profit decrease, attributed to lower service volumes, project delays, and unfavorable business mix.
  • 6The Oil & Gas segment revenue increased 81% due to the Baker Hughes transaction, but organic revenues declined 5% with a segment operating loss (excluding charges).
  • 7GE Capital's dividend payments to GE significantly decreased, impacting GE's overall cash flow from operations.
  • 8Credit rating agencies (S&P and Fitch) placed GE on a negative outlook or CreditWatch, indicating concerns about financial flexibility.
  • 9GE announced plans to exit approximately $20 billion in assets over the next one to two years as part of a broader business review.

Frequently Asked Questions

Consolidated revenues increased by 14% to $33.5 billion. This growth was significantly influenced by the inclusion of Baker Hughes' results following its acquisition and a gain from the sale of GE's Water business. However, excluding these items, GE's organic industrial revenues declined by 1%, primarily due to weaker performance in the Power and Oil & Gas segments, partially offset by growth in Aviation and Healthcare.

Net earnings attributable to GE common shareowners fell by 10% to $1.8 billion. This decline was primarily attributed to substantial restructuring and other charges amounting to $2.4 billion, which included a significant $0.9 billion goodwill impairment charge in the Power Conversion business, as well as other business development charges and impairments.

The Power segment saw a 4% revenue decline and a 51% profit drop, driven by fewer service volumes, lower shipments of gas turbines and aeroderivative units, project delays, and unfavorable product mix. The Oil & Gas segment, while boosted by the Baker Hughes acquisition, experienced a 5% organic revenue decline due to ongoing market weakness in oilfield equipment.

John L. Flannery took over as CEO in August 2017, and Jamie S. Miller became CFO in November 2017. Mr. Flannery initiated a comprehensive review of the company's businesses, identifying over $20 billion in assets to be exited within the next one to two years. This signals a strategic shift and a focus on streamlining the portfolio, which may involve further restructuring charges.

GE Capital's contribution to overall cash flow from operations significantly decreased due to reduced dividends paid to GE. The company continues its plan to reduce the size of its financial services businesses, which has implications for GE's liquidity and financial strategy. GE Capital also faced challenges, including higher impairments and organic revenue declines in its Verticals business.