General Electric posted higher profit than Wall Street expected as cost cuts in its power business softened the impact of weakening sales.
Earnings of 16 cents a share in the three months through March compared with the 12-cent average estimate from analysts surveyed by FactSet. Excluding businesses the Boston-based company is selling or winding down, income more than tripled to $369 million.
“Today is our first report card for 2018, and we see signs of progress,” Chief Executive Officer John Flannery told investors on an earnings call. “At a critical time, I’m extremely proud of the team’s intense effort and execution focus.”
The power business, which GE expanded with its $10 billion purchase of Alstom in 2015, continues to be the 126-year-old manufacturer’s “biggest challenge” and fixing it will require several years, the CEO said. The industry is softer than executives had projected, Flannery noted, which eroded some of the benefits of strong performances in the jet-engine, medical equipment and locomotive divisions.
Revenue from power sank 29 percent from a year earlier to $5.6 billion, as orders for gas turbines dropped about 24 percent at the end of last year and 40 percent in the three months through March.
Flannery’s team responded with $1.15 billion in expense reductions. “We’re aggressively moving to right-size our footprint and base cost,” he said. “We continue to be viewed as a go-to provider in our industry, and we’re fighting for every opportunity in the market.”
With the severity of that business’s decline as well as challenges in oil and gas, CFRA Research analyst Jim Corridore said, it’s not worth “wading into the shares” at this point.
Still, GE’s industrial cash flow improved by $1.1 billion from a year earlier, and the company reaffirmed its full-year target of as much as $7 billion, a key concern for shareholders including activist Trian Partners, as well as its profit goal of $1 to $1.07 a share.
“We’ve got a lot to execute on, but the first quarter was a good start,” Flannery said. Since succeeding Jeffrey Immelt in the top job in August, he has shaken up GE’s executive ranks while refocusing on core industrial businesses, which he identified as power, medical equipment, and jet engines.
The company’s stock climbed 3.9 percent to $14.54 in New York trading on Friday, paring its loss since Flannery took over to 43 percent. That compares with a 13 percent gain on the blue-chip Dow Jones industrial average, of which GE is a member.
Under pressure from Trian to streamline the company founded by Thomas Edison, Flannery said at a November investment meeting that GE would exit the locomotives and industrial lighting markets and might shed its controlling stake in oil-business Baker Hughes. He also halved the quarterly dividend to 12 cents a share, saving about $4 billion.
The CEO said in January that he expects to continue shrinking GE Capital, the once-sprawling lending arm that also houses the insurance business, which his predecessor began winding down in 2015. The company plans to sell roughly $20 billion of its businesses over the next two years.
“We continue to review and evolve our thought process regarding the best structure or structures for the company,” Flannery said Friday. “Our guiding principle is to ensure that our businesses have the right operating rigor, management alignment, and the organic and inorganic flexibility to maximize their potential and their value.”
