General Electric’s Grim Future

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A General Electric facility in Ohio in 2015. Source: Barron's

General Electric (GE) remains one of the most-talked about names in the stock market. Investors remain polarized over the company’s valuation, its credit metrics and its ability to survive. As long as global financial markets continue to melt up then GE bulls may win out regardless of the company’s financial performance. In my opinion, GE’s future appears grim.

Q1 2019 revenue from core GE (NewCo) – Aviation, Power Systems and Renewable Energy – was $15.2 billion, down 5% Y/Y. About 37% of total revenue was derived from Power Systems, which is facing stiff headwinds.

Power’s orders were $4.8 billion, down 14% Y/Y as the operating environment remains challenged. The segment is being disrupted by alternative energy. GE has to compete with Siemens (OTCPK:SIEGY), (OTCPK:SMAWF) and Mitsubishi (OTCPK:MHVYF) for the gas turbine orders that still remain. Revenues of $5.7 billion fell 22% Y/Y. This followed a double-digit decline in Q4 2018 as well. Power’s erosion could stymie GE’s top line for several more quarters.

Aviation remains the stalwart. Aviation orders were up 7% and revenue grew by double digits. The company shipped 636 LEAP engines during the quarter, more than double LEAP shipments in the prior-year period. However, LEAP orders fell 20% Y/Y. Orders will be driven by a mix of commercial and military demand. Given President Trump’s focus on security, military orders could remains robust. However, I expect a stagnant global economy to eventually cause commercial orders to dwindle. Read more:

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