Home » General Electric’s (GE) CEO Jeffrey Immelt on Q3 2014 Results – Earnings Call Transcript

General Electric’s (GE) CEO Jeffrey Immelt on Q3 2014 Results – Earnings Call Transcript

Distributed power was also lower by about 10 units as projects were delayed. On gas turbine units we’ve shipped 64 units year-to-date and now expect to ship about 105 in the year versus the 85 to 90 we planned.

Service revenues in the quarter of $2.9 billion were up 6% on higher AGPs and upgrades. From an operating profit perspective, we were at just shy of $1.2 billion, was down 8% driven by negative price and mix from higher wind and lower distributed power, which more than offset cost benefits including SG&A which was down 10%. Margins were down 110 basis points in the quarter.

For the fourth quarter, we expect strong double-digit revenue growth on higher gas turbine shipments, up above 40% and higher wind turbines up above 30% bringing the total year shipments to about 105 on gas turbines and about 3000 wind turbines which is within the original framework.

As discussed on the second quarter call, we still expect total year AGPs to be higher and distributed power units to be lower impacted by the delays we discussed previously.

In oil and gas, orders at $4.9 billion were up 10%, equipment orders were up 14%, up 20% organically excluding the impact of the Wayne disposition. We had strength in Subsea up 84% with strong Brazilian orders, downstream technology up 64%driven by demand in small-scale LNG, partially offset by DNS which was down 12% in the quarter.

Service orders were up 6% where strength in Subsea up 27% and turbo machinery up 8%, partially offset by MNC which was down 8%. Organically, MNC was up 7% with demand for control solutions improving in both industrial and oil and gas applications.

Revenues of $4.6 billion grew 7% year-over-year with equipment revenues higher by 9%, and services up 4%. Operating profit of $660 million was up 27%, on strong cost performance, project execution and a positive value gap offset by lower MNC mix. Margin rates expanded in the quarter 240 basis points. Our outlook for the year remains intact for the business with double-digit op profit growth.

However, we are moderating our view of orders growth from high single-digits to low double-digits to mid-single-digits. We expect orders to grow in the fourth quarter. As you know orders in the space are very volatile and we continue to see some big projects pushed to the right.

Next I’ll do aviation and healthcare, starting with aviation. Travel demand continues to grow with RBK’s August year-to-date up 5.1% domestically, and up 6.3% internationally. Orders for aviation were very strong in the quarter up 30% with equipment orders up 35% and $6.8 billion and services higher by 20%.

Equipment strength was led by $3.8 billion of GE 9X orders for Emirates, Etihad and Lufthansa. We also won $1.3 billion of CFM LEAP orders bringing our program today win rate on the next-end narrow bodies to 78%. Military equipment orders were down 40%, but up 3% year-to-date and are on track to be flat for the year.

Service orders were driven by strong commercial spares up 29% to $30.9 million a day, partially offset by military spares weakness. Revenues in the quarter is up $5.7 billion were up 6% driven by commercial equipment revenue up 22%, military up 8% and services down 1%.

Commercial spares were up 19% offset by military services down 17%. Leverage in the operating profit was strong with 16% growth on better price performance and volume, partly offset by higher GEnx shipments with 65 units in the quarter, up 39 from the third quarter of 2013.

SG&A ex-Avio was down 4% in the quarter and margins expanded to 190 basis points. Overall, David and the aviation team delivered a strong quarter, we expect the aviation business to continue to expand its technology leadership. GEnx shipments will be higher in the fourth quarter and we still expect to ship about 300 units for the year.

In healthcare, orders were up 1%, with better growth in the US which was up 3%, Europe was up 4% and Latin America was up 18%. This was offset by Japan down 12% and the Middle East down 15% in the quarter.

Equipment orders of $2.7 billion were flat on lower Japan and Middle East orders. Our US equipment orders were up 4% driven by very strong imaging and ultrasound orders which were up 10%. We believe the US market was up as well but more modestly.

China ACS equipment orders were up 6% in the third quarter and they are up 11% year-to-date. China growth was slower driven by tender decision delays in public hospitals. In Kieran’s business, Life Sciences, equipment orders were strong, up 15% and service orders for healthcare total were up 4%.

Revenues in the quarter were up 4% with developed markets up 2% and emerging markets up 11% including China up 10%, Latin America up 30%, and the Middle East up 16%. Op profit grew 9% driven by volume and strong cost productivity offset by negative price. SG&A was down 5% in the quarter.

Looking forward we expect US to remain volatile, but our products are performing well. Our position in china is very strong and we believe underlying healthcare demand remains strong in the long run with an aging population, increasing insurance coverage and continued government spend in healthcare.

As you heard today, we have a very exciting life sciences business with a unique position. Simplification will continue to transform our cost structure in this business.

Next is transportation which had a very strong quarter. Orders in the quarter were up 134% led by equipment orders up three times or $2.1 billion. The business took orders for more than a Tier-4 compliant locomotives to be delivered over the next three years.

Locomotive loading is nearing current capacity levels for 2015. Car loads continue to be strong led by agriculture, petroleum and intermodal and network velocity continues to be a challenge.

Mining equipment orders remain weak down 38%, transportation service orders were up 8% in the quarter. Revenues were up 10% driven by locomotive volume with units up 49% partially offset by services down 3% on mining weakness.

Operating profit was higher by 12% driven by local volume and cost productivity and SG&A was down 5% and that allowed margins to improve 40 basis points in the quarter. We are very pleased with the team’s execution on the Tier-4 loco and expect to continue to fill out our order book for 2016 and 2017 and we feel great about our ability to execute against this order growth.

Energy management, the business continues to improve. Our orders in the quarter were down 1% with digital energy down 25%, industrial solutions down 7% on weak European demand and the impact of exiting certain markets and products as part of restructuring.

Power conversion was strong, up 30% in the quarter driven by marine. Backlog grew 9%. Revenues up $1.8 billion were down 1%, op profit of $59 million was up three times on strong cost and restructuring execution.

And then appliances and lighting, the core industry within appliances was up 9% in the third quarter, retail was up 9% and contract up 7%. Revenue in the quarter was up 1% to $2.1 billion with appliances up 2% and lighting down 2%. Appliance revenue was driven by volume up 3%, while strong LED growth of 59% and lighting was more than offset by traditional product declines.

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