GE GE Aerospace

By Ted Mann and Joshua Jamerson 

General Electric Co.'s revenue declined 2% in the fourth quarter, as the company dealt with a depressed oil industry and shipped fewer jet engines and power turbines than it had planned.

Although revenue was below investors' expectations, Chief Executive Jeff Immelt said Friday that GE performed well, given its exposure to a world economy that is growing slowly, and volatility in the markets in which it operates. GE shares were off nearly 2% in afternoon trading.

Once again, GE's biggest problem is oil. The company's oil-and-gas unit, which makes equipment for petroleum exploration and production, has been hammered by the more-than-two-year slump in the price of crude, which prompted customers to rein in their spending.

Oil-and-gas revenue in the fourth quarter fell 22% from a year earlier, and segment profit fell 43%. GE recorded $12.9 billion in sales in the oil-and-gas business last year, down from $16.5 billion in 2015 and $19.1 billion a year earlier.

GE remains committed to the oil business, and says it will be poised to profit from an eventual rebound; but, meanwhile, the company is restructuring and trying to limit the pain. In late October, GE announced a deal to combine its oil-and-gas business with Baker Hughes Inc., a move seen as a cost-effective way for GE to reap the benefits of any recovery in the sector. Executives said on Friday's earnings call that they expect that deal to close midyear.

There were bright spots elsewhere, such as a 29% increase in sales in the company's renewable-energy business, driven by a surge of investment in onshore wind turbines. Revenue from GE's power business, which makes gas turbines for power plants, rose 20%, helped by the acquisition of Alstom's power business.

GE's industrial operating cash flow of $8.2 billion in the fourth quarter made it "the biggest cash quarter in our history," Mr. Immelt said. Orders for GE equipment fell, for the quarter and for the year, but orders for services rose by 20% in the fourth quarter and 13% for the year.

Strong service orders bode well for the predictable industrial earnings of the sort Mr. Immelt has been seeking in his transformation of GE back into a more traditional industrial company, after years of being powered by its lending arm, GE Capital.

Mr. Immelt shrugged off a question about whether the incoming Trump administration could play havoc with some of those business lines.

A campaign adviser to Mr. Trump, Continental Resources Inc. CEO Harold Hamm, has called for the elimination of renewable energy subsidies -- a critical factor not just in sales of GE's wind turbines, but also in some of its own energy-finance investments. Also, Mr. Trump and the Republican Congress have pledged to undo the Affordable Care Act, generating uncertainty in the health-care industry that could slow sales of GE's medical equipment, like MRI and X-ray machines. And Mr. Trump has pledged a resurgence in the coal industry, while GE has positioned itself to benefit as American utilities switch from coal to natural gas to generate electricity.

"You could see some caution around the Affordable Care Act as you go forward," Mr. Immelt said, but the industry hasn't shown much disruption yet. Tax benefits for renewable energy are "pretty much locked in place, " he said. "I still think the basic thesis around gas power in the U.S. remains intact as it pertains to being a base load technology in the future."

The current challenge for GE, now that it has pivoted away from finance to refocus on industrial businesses, is to meet the demand for its high-tech products, like jet engines and power turbines.

GE delivered only 77 of its new LEAP aircraft engines, made in partnership with France's Safran SA, down from a goal of 100 deliveries in 2016. Chief Financial Officer Jeffrey Bornstein said the company met "all our commercial commitments" after consultations with customers, and will deliver about 500 of the engines in 2017.

The company also didn't meet its goals for power-turbine shipments, a shortfall Mr. Bornstein attributed to the complicated markets where GE increasingly does business. Six turbines that company executives were convinced would be shipped by the end of the year weren't shipped, Mr. Bornstein said, including four bound for the Middle East.

"They were going into Bahrain and Iraq, and these were just enormously difficult geographies to get stuff done," Mr. Bornstein said. "And right up to the end of the year, we thought those transactions were going to go. They didn't end up going. I think we're confident they will go in the first half of 2017."

Overall for the latest quarter, GE's profit fell to $3.67 billion, or 39 cents a share, from a year-earlier $6.28 billion, or 64 cents a share, reflecting in part the paring back of GE Capital. On an adjusted basis, earnings were 46 cents a share, in-line with the consensus estimate from analysts polled by Thomson Reuters.

Revenue slipped to $33.1 billion from $33.89 billion in the year-earlier fourth quarter, missing analysts' projections for $33.63 billion.

Write to Ted Mann at ted.mann@wsj.com and Joshua Jamerson at joshua.jamerson@wsj.com

(END) Dow Jones Newswires

January 21, 2017 02:47 ET (07:47 GMT)

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