GE Posts Weaker Industrial Results, Predicts Second-Half Rebound

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GE is working through a transformation to refocus on its core industrial businesses like aviation and power. ENLARGE
GE is working through a transformation to refocus on its core industrial businesses like aviation and power. Photo: Reuters

General Electric Co. GE -2.15 % reported lower quarterly profit and revenue in its core industrial business, weighed down by its oil equipment division, but executives predicted demand would improve the second half of the year.

Industrial orders—a key measure of future demand for GE’s jet engines, power turbines and oil production equipment—fell 16% in the second quarter, excluding recent acquisitions. Despite a 1% decline in organic industrial revenue in the first half of the year, executives stuck by their target of 2% to 4% growth for the year.

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“Bottom line, we are seeing organic growth accelerating in the second half,” Chief Executive Jeff Immelt said on a conference call Friday. While the company’s oil and gas and transportation businesses are in “tough cycles,” he said, the outlook for the global economy “is no better, no worse” than earlier in the year and “85% of our company is in great shape.”

GE shares, up more than 20% over the past year, fell 2% in Friday morning trading to $32.03.

Rival Honeywell HON -3.34 % International Inc. on Friday also reported a second-quarter decline in core organic revenue, which excludes acquisitions. Unlike GE, the maker of aerospace systems and building controls warned it now expects organic revenue to fall 1% for the year, instead of increase 1% to 2%. Honeywell shares fell nearly 5% on Friday.

GE said a surge of shipments of power turbines would help drive revenue growth in the second half of the year. The oil and gas business will benefit from easier comparisons, and the company says other units are performing well. Those include its renewable power business, which makes wind turbines, and its health care business, where sales rose 19% in China.

The heaviest drag on GE’s performance continues to be its oil and gas equipment business, which has struggled since oil drillers and producers slashed capital spending amid the long-term slump in crude oil prices.

Technicians are pictured around a LEAP-1A engine developed by CFM, a joint venture between France's Safran and General Electric. ENLARGE
Technicians are pictured around a LEAP-1A engine developed by CFM, a joint venture between France’s Safran and General Electric. Photo: Remy Gabalda/Agence France-Presse/Getty Images

The company said that a surge of shipments of power turbines would help drive revenue growth in the second half of the year.

“The environment remains very, very tough,” Chief Financial Officer Jeffrey Bornstein said, as the number of active rigs and wells continues to shrink. Mr. Immelt said he saw no likelihood that the oil outlook would improve in 2017.

Oil & Gas revenue fell 22% and profit dropped 48% in the quarter, and orders fell 34% compared with last year. GE said it is continuing to target $800 million of cost-cutting in the oil business for the year to offset falling revenues and profits.

GE showed “exceptionally weak orders,” wrote Nigel Coe, an analyst for Morgan Stanley, MS 0.45 % in a note to investors. Hitting GE’s growth assumptions for the second half of the year will be “extremely challenging based on today’s trends and this, of course, has implications for 2017,” he wrote.

Overall for the period ended June 30, GE reported a profit of $2.74 billion, or 36 cents a share, compared with a loss of $1.36 billion, or 17 cents a share, a year earlier.

Revenue rose to $33.49 billion from $29.23 billion. The revenue was boosted by last year’s acquisition of Alstom’s power business, which contributed $3.2 billion in the quarter.

Excluding the finance businesses being wound down, GE reported a profit of 51 cents a share, while revenue came in at $24.4 billion.

GE said its industrial profit slipped 5.4% to $4.1 billion in the quarter.

Last month, the conglomerate’s lending arm, GE Capital, successfully shed its designation as a “systemically important” financial institution—a label that had required the company to submit to stricter rules and supervision by the Federal Reserve—after months of shedding assets of the business, long seen as a distraction by investors who believed it dragged on the company’s share price.

GE said Friday that the GE Capital exit plan has enabled it to return $15 billion in dividends year to date, and the company’s de-designation as a systemically important financial institution gives it more balance sheet flexibility.

In addition, the parent company borrowed $5 billion from GE Capital in the second quarter, using the money to help fund the company’s accelerated share buyback program. “This makes a ton of sense for the company,” Mr. Bornstein said.

“We will continue to invest in key growth initiatives such as GE Digital, while returning [about] $26 billion to investors through buyback and dividends,” Mr. Immelt said.

Ted Mann at ted.mann@wsj.com



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