Can Higher Industrial Segment Profit Drive GE's Q3 Earnings?
Zacks Investment Research | Oct 18, 2017 08:03AM ET
Industrial goods manufacturer General Electric Company (NYSE:GE) is scheduled to report third-quarter 2017 results before the opening bell on Oct 20. The company is likely to report higher industrial segment profit in the quarter on the back of a change in top management.
Whether this could drive the bottom line of the company remains to be seen.
Core Industrial Focus
With a reshuffle in its top management, GE intends to focus solely on its core industrial operations after completing the GE Capital exit plan. John Flannery took the helm as the Chairman and CEO of the company replacing Jeff Immelt. Flannery has led complex financial and industrial businesses of GE across the world and the company is likely to capitalize on his rich experience to fuel growth.
GE is selectively acquiring assets to boost its Industrial Internet vision and improve the top line. The company is also focusing on the commercialization of the Predix software through periodic updates and new capabilities to augment its revenues.
Amid this backdrop, the Zacks Consensus Estimate for the Industrial segment profit in the to-be-reported quarter is currently pegged at $4,546 million compared with second-quarter profit of approximately $3,947 million. Almost all the sub-segments within the Industrial segment are likely to record healthier profits on a sequential basis except Healthcare. Profit from the Oil & Gas segment is likely to double to $304 million from $155 million in the second quarter while that from Power & Water and Aviation is expected to rise to $1,277 million from $1,031 million and $1,559 million from $1,492 million, respectively.
Other Key Factors
Despite prudent steps to limit its financial exposure by divesting GE Capital assets, GE is still susceptible to various market risks. The company’s objectives of simplification and productivity improvement pose operational execution risks as well. For a company as big as GE, the additional revenues needed for growth are quite large, posing a challenge to developing businesses on such a vast scale.
Moreover, as Flannery assumed the role of the Chairman as Immelt retired three months in advance, three top order exits followed in quick succession. These included Chief Financial Officer Jeffrey Bornstein stepping down after 28 years of service on Oct 31, 2017 and fellow vice chairs, John Rice and Beth Comstock, retiring at year end after 39 and 27 years of service, respectively. Such sweeping changes in top management created a negative investor perception and fuelled speculations that fundamental challenges within the company are worse than what Wall Street is currently discounting.
Furthermore, our proven model does not conclusively show that General Electric is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Zacks Investment Research
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