GE GE Aerospace

By Thomas Gryta 

General Electric Co.'s second-quarter profit dropped 30% as the company's power division continued to offset growth in other major units.

While the industrial conglomerate backed its 2018 profit goal, it said free cash flow would be at the low end of its previous estimate. The company's adjusted earnings of 19 cents a share for the period beat Wall Street expectations, 17 cents a share according to Thomson Reuters. Revenue of $30.1 billion also topped consensus projections of $29.3 billion.

GE recently unveiled its road map for restructuring under new Chief Executive John Flannery, a series of moves to significantly dismantle the conglomerate without a complete breakup of the onetime bellwether. Over several years, GE plans to separate its Healthcare unit into its own company and exit its majority holding in oil-and-gas firm Baker Hughes. GE said Friday that its plan to sell $20 billion in assets is "substantially complete."

"We saw continued strength across many of our segments, especially in Aviation and Healthcare," Mr. Flannery said in prepared remarks, noting that GE cut costs in its industrial divisions by $1.1 billion in the first half of 2018.

"We expect the power market to remain challenging, and we continue our focus on operational improvement," he said.

GE reported second-quarter net income of $615 million, down from $875 million in the same period the year before. Over all, GE said revenue in the three months ended June 30 rose 3% from $29.1 billion, including a boost from the merger of its Oil & Gas business with Baker Hughes a year ago. GE still owns a majority stake in the combined company.

The company's shares were roughly flat in premarket trading Friday.

The company stood by its 2018 earnings projection of $1 to $1.07 a share; it has said it was likely to meet the lower end of that range. Analysts currently 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.

GE now expects adjusted free cash flow of about $6 billion for 2018, down from a previous projection of $6 billion to $7 billion. The company still expects to end the year with at least $15 billion in cash.

GE cut its dividend in November for only the second time since the Great Depression and investors are focused on its ability to generate cash from its operations. In the latest quarter, it had adjusted free cash flow of $258 million from its industrial operations, a jump from last quarter's negative free cash flow of $1.7 billion but down from $369 million a year ago.

Revenue in the Power unit fell 19% in the second quarter on a 26% drop in orders. The segment's profit declined 58% in the period. GE said it is still working on shrinking the physical size of the business and cutting costs, while focusing on servicing its existing customers.

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 13% in the quarter and profit grew 7%. Orders at the division jumped 29% as demand for its next generation jet engines remained strong. GE also booked more than $22 billion in new orders this week at the Farnborough air show in England, it said.

At Healthcare, profit rose 12% to $926 million as revenue grew 6% to about $5 billion.

Profit at GE Capital, the company's financial-services division, dropped 20% to $207 million in the quarter, while revenue fell 1% to $2.4 billion.

GE continues to contemplate shrinking both the size and risk in the unit. The business has been a source of negative surprises for investors and Mr. Flannery is looking for options to neutralize or exit parts or all of the business, people familiar with the matter say.

Write to Thomas Gryta at thomas.gryta@wsj.com

(END) Dow Jones Newswires

July 20, 2018 07:58 ET (11:58 GMT)

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