WSJ : GE Takes Hit From Old Mortgage Unit but Says Turnaround on Track

GE Takes Hit From Old Mortgage Unit but Says Turnaround on Track
Conglomerate books a $1.5 billion charge related to its once-massive lending business

General Electric Co. GE 2.42% reported a quarterly loss as the conglomerate took a $1.5 billion charge related to a subprime mortgage business it once owned, but the company said it was making progress on its cost-cutting efforts and reaffirmed its 2018 financial targets.

The company reported a net loss of $1.18 billion for the quarter, including the charge for a potential settlement of a government probe of its WMC Mortgage business. Excluding the charge, the company said its profits were ahead of its plan.

Revenue in its industrials business fell 4% in the period, excluding acquisitions and currency swings, dragged down by declines in its Power division, which has been struggling with excess capacity and slack demand for its power plant equipment. Sales rose in health care and aviation units, and at its Baker Hughes oil business.

The industrial conglomerate continues to reassess its portfolio and said Friday that it expects proceeds of $5 billion to $10 billion from asset sales during 2018. It expects to complete divestiture plans of its Transportation division by the end of June and sell its Lighting business by year-end, the company said Friday.

“The first quarter is a step forward in executing on our 2018 plan and we are seeing signs of progress in our performance,” Chief Executive John Flannery said in prepared remarks. He reaffirmed the company’s profit target for the full year and said GE was on track to exceed its target to cut $2 billion in expenses this year.

GE reported a first-quarter loss of $1.18 billion, wider than the loss of $117 million in the same period the year before. On an adjusted basis, the company reported a profit of 16 cents a share, up from 14 cents a year ago. On that basis, analysts polled by Thomson Reuters were expecting adjusted earnings of 11 cents a share.

Overall, GE said revenue in the March quarter rose 7% to $28.66 billion, including a boost from the merger of its Oil & Gas business with Baker Hughes last July. GE still owns a majority stake in the combined company. Analysts were expecting $27.45 billion in total revenue.

The company’s battered shares rallied in premarket trading Friday, gaining 6% to $14.80. The stock has dropped by half over the past year as the company has embarked on a multiyear restructuring, lowered its profit goals and cut its annual dividend by half.

On Friday, GE stood by its 2018 earnings projection of $1 to $1.07 a share. In February, the company said it was likely to meet the lower end of that range and analysts current forecast just 95 cents a share for the year. The estimate was originally given in November when the company revised its long-held target of $2 a share in earnings for 2018.

Revenue in the Power unit fell 9% in the first quarter and the segment’s profit fell 38%. Last year, GE said it would eliminate 12,000 jobs in the division to combat weak orders, which fell by a third in the March quarter. GE said it has closed 17 sites in the division in the last six months and said Friday it would be “exiting other noncore assets” in the divisions.


Mr. Flannery said the power industry “continues to be challenging and is trending softer than our forecast.”

Profits and sales rose in GE’s other two core units, aviation and health care. In the Aviation business, which manufactures and services jet engines, sales rose 7% in the quarter and profits jumped 26%. With $1.6 billion in segment profit, Aviation accounted for more profits than all of the other units combined.

Much of investor focus and Mr. Flannery’s strategy has been to improve GE’s ability to generate cash from its operations. In the latest quarter, it had negative free cash flow of $1.7 billion from its industrial operations, compared with negative $2.7 billion in the year ago period.

GE ended March with about in $13 billion in cash and equivalents, down from about $19 billion in December. The company said it still expects the end year with more than $15 billion in cash. The cash balances exclude its GE Capital unit. The company highlighted Friday that it has more than $40 billion of credit lines at various banks which are untapped.

FT : Schlumberger says oil sector will see supply challenges this year

Schlumberger, the world’s largest listed oilfield services group, has said the oil market will face growing supply challenges over the coming year, following the steep drop in investment in recent years.

Paal Kibsgaard, Schlumberger’s chief executive, said as the company reported first quarter earnings that three consecutive years of “dramatic underinvestment” in oil exploration and production worldwide had resulted in declining production in countries including Angola, Norway, Mexico, Malaysia, China, and Indonesia.

He added that there were “production challenges” emerging in the US shale oil industry, including constraints on pipeline capacity and other infrastructure, and weaker production from wells drilled close together.

“A significant increase in global E&P investment will be required to minimise the impending deficit,” he said.

For the quarter, Schlumberger reported earnings slightly above expectations, with strength in its US business offset by the weakness of its international operations, which the company said “largely reflected transitory factors”.

Revenues were down 4 per cent at $7.8bn for the three months to end of March. Net income was $525m, an 88 per cent jump from the prior year period. Excluding one-off items, earnings per share were 38 cents, down 5 per cent from the equivalent period of 2017.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • SKX -24.2%, TEAM -12.5%, MRTN -5.8%, ETFC -2.1%, MAN -1.3%, SHOO -1.2%, SLB -1%, WM -0.7%

Other news:

  • FL -1.7% (likely related to SKX)

Analyst comments:

  • PG -1% (downgraded to Neutral from Buy at BofA/Merrill; downgraded to Hold from Buy at Deutsche Bank)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:

  • ERIC +15.1%, LLNW +14.1%, GE +5.1%, BDN +2.7%, WERN +2.1%, HON +1.8%, EGP +1.4%, WAL +1.4%, RCI +0.8%, VLRS +0.8%, TRU +0.7%, STI +0.5%

M&A news:

  • FFKT +16% (WesBanco Inc and Farmers Capital Bank to merge; Farmers shareholders will receive 1.053 shares of WesBanco and $5.00 per share cash)
  • SQ +1% (Square acquires Zesty, a catering platform; terms not disclosed)
  • CTWS +1% (ticking higher; Eversource Energy made competing proposal to acquire all the outstanding shares of Connecticut Water Service for $63.50 per share)
  • MON +0.8% (Russia antitrust agency approves Monsanto (MON) / Bayer (BAYRY) M&A deal)

Other news:

  • PF +6.6% (Pinnacle Foods spikes higher after Jana increases stake to 9.1% from 1.2% - and becomes active shareholder)
  • RIGL +3.4% (prices 16 mln shares of common stock at $3.90 per share)
  • AAV +3.2% (provides production update)
  • XNET +2.7% (launched ThunderChain, a blockchain platform)
  • HCLP +2.1% (increases quarterly distribution to $0.225/unit from $0.20/unit)

Analyst comments:

  • TWTR +3% (downgraded to Underperform from Neutral at BofA/Merrill)
  • TSCO +1.9% (upgraded to Overweight from Neutral at Piper Jaffray)
  • DRI +1.4% (upgraded to Outperform from Mkt Perform at Bernstein)
  • ALGN +1.1% (initiated with a Buy at Berenberg)

>>> US Early premarket gappers

Early premarket gappers

Gapping up:

  • FFKT +16%, ERIC +15.4%, LLNW +12.9%, PF +9.1%, GE +4.4%, CAG +2.9%, BDN +2.7%, GERN +2.4%, HCLP +2.1%, SSW +2.1%, WERN +2.1%, EGP +1.4%, WAL +1.4%, RF +1.1%, RCI +0.8%, CTWS +0.7%, MAT +0.7%, TRU +0.7%, STI +0.5%

Gapping down:

  • SKX -22.8%, TEAM -13.3%, MRTN -5.8%, ETFC -2.2%, SYF -0.5%