Heading in to Q4 earnings General Electric’s (GE) credit quality was cause for concern. After downgrading GE’s down a few notches from junk status, the rating agencies expressed concern over the diminution of Power Systems. The company also named H. Larry Culp as new CEO. Culp has accelerated asset sales in order to pare debt and appease the rating agencies.
Revenue from core GE (NewCo) – Aviation, Power Systems and Renewable Energy – was $18.6 billion, flat Y/Y. This was an improvement over the high single-digit decline last quarter. Over 35% of NewCo’s revenue comes from Power Systems, which remains a laggard.
Orders fell 19% Y/Y as the operating environment for Power continues to deteriorate. Overcapacity in the segment persists, as well as lower demand for equipment. Long-term, the 25 to 30 gigawatt market will drive the Power segment. Management is adjusting to this trend. Revenue fell 25% and will likely fall in 2019 due to waning demand and pricing pressure.
Aviation orders were up 12% and the segment’s performance were stellar again. Equipment orders grew 20%, driven by strong momentum of the LEAP engine program. Military equipment orders were up 69%. Aviation revenue was up 21%, and remains the stalwart of NewCo. President Trump has cited a need to beef up military spending, and this could remain a catalyst. At some point, the slowing economy could impact commercial orders or sentiment for the Aviation segment. For now, Aviation remains a star. Read more: