The oil and gas business remains “challenging,” but General Electric (GE) is taking the long view on the energy sector pending integration with Baker Hughes Inc., the CFO said Friday.
The outlook for the merged GE-Baker Hughes business, completed in early July, is not until September. During last Friday’s 2Q2017 conference call, CFO Jeffery Bornstein provided some insight into only GE’s legacy oil and gas operations.
“Our legacy business sees some improvement in activity, but we have not seen meaningful increases in customer capital commitment,” Bornstein said. “Oil prices remain volatile and, as a result, our customers remain cautious. As we have said previously, we expect shorter cycle activity to increase in the second half of the year. So far these improvements are trending below expectations.”
Because of slower market activity, “we expect the numbers in the second half for legacy GE oil and gas to be lower than previously anticipated but improved from the first half,” he said.
“The business is very focused on the synergy pipeline with the integration in order to offset as much of the market pressure as possible.
Beginning with 3Q2017 results, the combined company plans to release separate financial statements and hold a separate earnings call.
GE’s oil and gas orders during 2Q2017 climbed 14% year/year and 12% sequentially to $3.2 billion.
“The equipment book-to-bill ratio was 1:1 for the first time in the better part of two years,” Bornstein said. “Equipment orders totaled $1.4 billion, up 50%. Every business segment grew.”
GE’s subsea business reported a 177% surge in orders from gains in Brazil and because of Eni SpA’s work in Mozambique.
Oil- and gas-related terminations during the quarter totaled $542 million. Service orders fell 6% “on softer markets, driven by turbomachinery, down 13%, surface down 11% and subsea down 6%,” Bornstein said. The reversals partially were offset by strong performance in the digital solutions business, which grew 6%.
Total backlog ended the quarter at $20 billion, down 12% year/year.
Revenues of $3.1 billion in 2Q2017 were down 3% from 2Q2016. Equipment revenue declined 8%, driven by subsea, which was off 31%. Those decreases more than offset growth in surface, which was up 12%, and turbomachinery, up 3%. Operating profit was $155 million in the quarter, down 52% from a year ago.
“Performance was driven by unfavorable price and negative variable cost productivity that more than offset sourcing and structural cost,” Bornstein said. “As the market recovery has been slower and more volatile than we planned, performance of the business in the second quarter was below expectation. Customers are delaying purchasing for both larger projects and shorter-cycle operating expenditure activity.”