By Ted Mann And Chelsey Dulaney
General Electric Co.'s first-quarter earnings report showed that
CEO Jeff Immelt's strategy to exit banking and refocus on its
industrial operations won't be all smooth sailing.
Revenues fell at three of the company's top four industrial
units, the ones that make oil-and-gas equipment, jet engines and
medical devices. Of those four, only its power-turbine business
increased sales, but profits for the unit fell as several large
orders were delayed, executives said.
Total industrial revenue fell 1%, hurt by the stronger
dollar.
Industrial operating profits, however, rose 9% to $3.6 billion
and margins improved. Mr. Immelt said the company was on track to
deliver on the high end of a forecast of $1.10 to $1.20 in
industrial per-share earnings for the year.
Shares of GE slid 0.6% to $27.12 in afternoon trading amid a
broad market selloff.
"GE had a good quarter in a slow-growth and volatile
environment," Mr. Immelt said. "We're seeing the world that we
planned for."
The results highlight the tricky terrain GE will navigate once
it completes Mr. Immelt's move away from financial services and
back toward the business of heavy industry. GE's industrial
equipment orders fell in the quarter, the fourth time in the past
five quarters that GE hasn't grown in orders.
For GE, the future will look a lot more like the terrain that
competitors, such as Honeywell International Inc., have had to
cover in a period of slow global growth--without assistance from a
profitable, if risky, banking arm.
Honeywell, whose businesses include aerospace components,
chemicals and building control and alarm systems, cut its yearly
revenue forecast and reported a 5% drop in sales, driven by the
collapse in oil prices as well as foreign exchange woes. Profit
rose 11% to $1.12 billion.
Shares of Honeywell fell 1.6% to $102.25.
Chief Executive Dave Cote told investors that momentum in the
company's businesses started to pick up toward the end of the first
quarter, and said he believed the U.S. economy should gain strength
as consumers continue to benefit from lower gas prices.
Mr. Cote said this is the longest the American consumer has gone
without "spending kind of newfound riches." Just the same, he
added, he wouldn't count on such a rebound, "because if I'm wrong,
it's not a good place to be."
These are the calculations GE is embracing as it embarks on its
boldest move yet to shed financial services and return to its
industrial roots.
Last week, GE said it would pare down its GE Capital business
significantly, unveiling plans to sell off about $165 billion of
loans to borrowers like Wendy's franchisees, overseas consumers and
private-equity firms. GE also said it would sell a $26 billion
portfolio of investments in office buildings and other commercial
property to buyers that include Blackstone Group LP and Wells Fargo
& Co.
The plans represent one of the biggest strategic shifts in the
123-year history of the company. GE had warned it would book about
$16 billion in charges in the quarter to repatriate cash and for
impairments because of shortened hold periods.
Overall for the quarter ended March 31, GE had a loss of $13.6
billion, compared with a profit of $3 billion a year earlier.
Excluding the one-time charge, net earnings would have fallen 7% to
$2.8 billion.
GE held the line in its oil-and-gas business, where analysts
were bracing for ugly results given the plunge in crude oil. The
company reported a 3% decline in profit and an 8% drop in
revenue.
Analysts who follow the company expect those returns to continue
falling through the year as oil-production companies continue to
slash capital expenditures, including on GE's oil-field equipment
and services.
Oil-and-gas equipment orders fell 10% to $2.2 billion, following
on a 15% drop in the fourth quarter of 2014. The unit's revenue
from equipment sales fell by 13% in the first three months of this
year, GE said. And, overall, the company reported a 9% drop in
infrastructure equipment orders from "resource rich" countries,
including those in the Middle East, Africa and Russia--regions that
have seen economies seriously affected by the collapse in crude oil
prices.
Meanwhile, GE Capital revenues fell 39% to $5.98 billion. The
business has been a significant profit driver for the company, but
it has fallen out of favor with investors, who fear it casts a pall
on the company's industrial business.
Write to Ted Mann at ted.mann@wsj.com and Chelsey Dulaney at
Chelsey.Dulaney@wsj.com
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