GE's Profit Falls as Power Division Remains a Drag

Irving Hamilton
July 21, 2018

"The market is challenging but we need to work through that", Flannery said.

The results results show "how challenged fundamentals actually are", Steve Tusa, an analyst at JPMorgan Chase & Co., said in a note to clients.

The stock was up 1 percent at $13.88 in pre-market trading.

Some analysts took the remarks to mean GE could be hit with half of the $300 million to $400 million estimated cost, helping to fuel a 4.5 percent drop in GE shares on Friday.

While the cash target cut raised concerns, GE produced better-than-expected adjusted profit and there was no bad news so far about ongoing accounting investigations, a shareholder lawsuit and a federal inquiry into subprime mortgage activity.

A decade and a half ago, GE was the world's most valuable public company.

The Boston-based company anticipates industrial free cash flow this year of US$6 billion, the low end of its earlier projection of as much as US$7 billion.

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"They didn't screw up", said Nick Heymann, analyst at William Blair.

In comment on the tariffs set up by President Donald Trump, Flannery said GE imports about $2.9 billion worth of goods annually from China, roughly 10 percent of total its imports.

In May, GE announced an $11.1-billion deal to merge its locomotive unit with Wabtec Corp.

GE exited the Dow Jones Industrial Average for the first time in more than a century last month.

Finally, GE's top executive in Latin America was jailed in Brazil after prosecutors said he was involved in a price-fixing scheme for medical equipment.

Losses widened at GE Capital, the company's financing arm, to $207m compared with a loss of $172m a year ago.

Power unit profit fell 58% in the quarter, to $421m from $994m, as orders fell 26% to $7.4 billion. Shares fell even as General Electric beat Wall Street's expectations with quarterly revenue of $30.1 billion and adjusted earnings of 19 cents per share. Adjusted free cash flow from industrial activities swung to a positive $258 million in the quarter from a negative $1.7 billion in the first quarter.

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