General Electric: POOF! There Goes The Moat

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General Electric (GE) reported Q2 revenue of $28.83 billion, Non-GAAP EPS of $0.17, and GAAP EPS of -$0.03. The company beat on Non-GAAP EPS and missed on GAAP EPS, while revenue was in line. The stock was flat in afternoon trading. The narrative has the potential to change each quarter, but I would rather focus on earnings fundamentals. I had the following takeaways on the quarter.

NewCo Continues To Deteriorate

Q2 2019 revenue from core GE (NewCo) – Aviation, Power Systems, and Renewable Energy – was $15.1 billion, down 15% Y/Y. This followed a 5% decline last quarter. About 31% of NewCo’s revenue was derived from Power, down from 35% in the year-earlier period. The segment remains NewCo’s worst performer.

Power’s orders were $4.9 billion, down 22% Y/Y as the operating environment remains challenged. Power is being disrupted by alternative energy, and management is making its best efforts to rightsize the business. GE reorganized businesses into Gas Power and Power Portfolio, eliminating the Power headquarters structure to reduce costs. It also reorganized Grid Solutions equipment and services into Renewable Energy. Overcapacity remains in the Power segment, and it could face headwinds for the foreseeable future.

Aviation was expected to be the moat. However, its revenue declined 5%. Aviation orders actually fell 9% Y/Y. GE bulls believe Aviation can remain a stalwart, but I find it hard to believe. For now, global passenger air travel continues to grow. Read more:

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