The U.S. conglomerate, General Electric (GE, Financial), will release its third quarter results on October 17, and analysts are already calculating the expected financials from the quarter. This quarter has been a remarkable one for the company as it has stepped up its acquisition spree, and also decided to sell off the appliance unit to Electrolux (ELUXY, Financial). Let’s find out what the results may look like when the management makes the final announcement on Friday.
The Performance of the Industrial Segment
GE had set a target of 4-7% industrial organic sales growth at the beginning of the fiscal year, and by mid-year it was on track to achieve this target. The solid growth of 10% industrial profit growth was driven by the aviation and the oil and gas segments which together constitute around 40% of the total industrial revenue.
As GE’s investing in building better engines to propel the airplanes of Airbus (EADSY, Financial) and Boeing (BA, Financial), shipments of jet engines to the two aviation giants is also growing at a rapid pace. The recent acquisition of Milestone Aviation for $1.78 billion will give access to almost 2,000 helicopters used in the oil and gas industry, boosting its aviation segmental revenue. Engine servicing is also on the rise considering the growing worldwide fleet of commercial airplanes. Indeed, such factors have already led to a 15% hike annually in the segment’s revenue and profits in the first half of 2014. Analysts are anticipating that the segment will continue to post double-digit growth in the upcoming quarter as well.
The other segment that will help increase revenue in the industrial sector could be the oil and gas segment, which had an increase in the top and bottom line of more than 20% annually during the first half of the year. As the energy demand is rising mainly in emerging countries, the sales of oil and gas drilling GE equipment is also showing quick signs of improvement. The company has a huge backlog of orders in this segment that can easily drive growth even in the third quarter. GE also opened an advanced manufacturing plant last month and recently received a $500 million order from Exelon (EXC, Financial) for the purchase of power equipment. All this seems to bode well for the company and investors do not need to worry much.
But, the main laggards in the industrial segment will be the transportation and healthcare segments. The GE transportation segment manufactures locomotives and also provides equipment to the mining industry players. As the global mining industry is facing a slump in demand, GE equipment sales will also be affected, and hopefully this quarter will see lowered sales as the mining sector shows softness in demand. Analysts are expecting the remaining industrial sector segments which includes the healthcare, energy management and appliances and lighting segments to post flattish sales for the quarter.
The analysts’ views
Analysts are anticipating that the company earnings would be close to $0.40 per share with about $37 billion reported as revenue for the quarter. And GE has the record of toppling analyst estimates and outpacing their expectations, so all eyes are set on the third quarter results announcement.
No major changes in the earnings outlook should be happening for the entire year which currently stands at $1.67 per share in 2014, and revenue is estimated to be nearly $148.9 billion.
Cost reductions to promote growth momentum
At the start of the fiscal year, GE’s management had pledged to slash $1 billion from its structural costs through headcount reduction, plant consolidations and removal of unnecessary enterprise resource planning systems. Keeping to their commitment, the company was able to reduce structural costs to the tune of $382 million in the first half of the fiscal year. As the macro environment is setting a negative trend in several of GE’s operative segments, it’s important that the company keeps the costs under control in the third and fourth quarters as well.
So, additional gains would subsequently be felt if the company reports lower marginal costs this quarter, thus boosting its bottom line to a considerable extent.
Last word
It’s true that though we are speculating the financial performance of the company, its best to stay tuned for the results to be out after which we can probably do a more solid discussion on the third quarter’s top and bottom line attributing factors. Meanwhile, the company looks to be in a strong position to report better numbers this quarter. So, let’s stay hooked and wait for the third earnings call scheduled this Friday before the market opens.
