General Electric, Honeywell Post Lower Revenue --4th Update
July 22 2016 - 2:50PM
Dow Jones News
By Ted Mann
Industrial giants General Electric Co. and Honeywell
International Inc. reported lower quarterly revenue Friday, weighed
down by slow growth and cheap oil, while promising better results
to come.
GE beat profit forecasts, but said industrial orders -- a key
measure of future demand for GE's jet engines, power turbines and
oil production equipment -- fell 16% in the second quarter,
excluding recent acquisitions. Despite a 1% decline in organic
industrial revenue in the first half of the year, executives stuck
by their target of 2% to 4% growth for the year.
Honeywell, a maker of aerospace systems and building controls,
warned it now expects organic revenue to fall 1% for the year,
instead of rising between 1% and 2%. Core organic sales fell 2% in
the quarter.
Shares of Honeywell fell 3.5% to $114.54 in midday trading
Friday, while GE's shares, up more than 20% over the past year,
dropped 2.2% to $31.88.
Industrial companies have been coping for years with anemic
macroeconomic growth, scouting out spots of demand around the globe
for the expensive heavy machinery they sell.
On Friday, both conglomerates said their portfolios remained
relatively strong, but were held back in the second quarter,
especially because of the outsize impact of low oil prices.
GE's challenges are multiple but consistent, Chief Financial
Officer Jeffrey Bornstein said, borne out of slow global economic
growth and turbulent geopolitical times -- everything from the U.K.
vote to leave the European Union to Middle East turmoil and
currency shifts.
"All this uncertainty generally limits growth," Mr. Bornstein
said.
The company forecasts revenue will improve over the remainder of
the year, helped by an anticipated surge in power turbine
shipments.
"Bottom line, we are seeing organic growth accelerating in the
second half," Chief Executive Jeff Immelt said on a conference call
Friday. While the company's oil and gas and transportation
businesses are in "tough cycles," he said the outlook for the
global economy "is no better, no worse" than earlier in the year
and "85% of our company is in great shape."
The heaviest drag on GE's performance continues to be its oil
and gas equipment business, which has struggled since oil drillers
and producers slashed capital spending amid the long-term slump in
crude oil prices. Mr. Immelt said he saw no likelihood that the oil
outlook would improve in 2017.
Revenue from its oil and gas division fell 22% and profit
dropped 48% in the quarter. Orders fell 34% compared with last
year. GE said it is continuing to target $800 million of
cost-cutting in the oil business for the year to offset falling
revenue and profits.
Overall for the period ended June 30, GE reported a profit of
$2.74 billion, compared with a $1.36 billion loss a year ago.
Revenue rose 15% to $33.5 billion, helped by last year's
acquisition of Alstom SA's power business.
Meanwhile, Honeywell Chief Financial Officer Thomas Szlosek said
in an interview that the pressures on the company's petroleum
processing supply business were already starting to ease, but not
before it helped drive the company's second-quarter decline in core
organic revenue, which excludes acquisitions.
In addition to oil, Honeywell had to deal with tough comparisons
to last year's big deals, like its sale of hand-held scanning
equipment to the U.S. Postal Service, as well as a long-anticipated
spike in the sales incentives it offers airplane makers in exchange
for placing its equipment and systems on new planes.
"Those headwinds stop" after 2016, CEO Dave Cote said. "It's
just a matter of dealing with them as they are today."
For the quarter, Honeywell reported a 7.6% increase in profit to
$1.28 billion from a year prior. Total revenue grew 2.2% to $9.99
billion.
--Anne Steele contributed to this article.
Write to Ted Mann at ted.mann@wsj.com
(END) Dow Jones Newswires
July 22, 2016 14:35 ET (18:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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