General Electric Co. may not grow this year as low oil prices, a strong dollar and a sluggish economy crimp demand for oilfield equipment and locomotive parts, a setback for CEO Jeffrey Immelt as he pursues a sharpened focus on manufacturing.
The stock fell the most in more than a month after GE cut its outlook for organic sales growth. The company projected the figure would be flat to up 2% this year, after previously forecasting an increase of as much as 4%.
GE is struggling to demonstrate the benefits of a corporate transformation in which Immelt has refocused on making power turbines, jet engines and oilfield equipment while selling off financial and consumer operations. While GE rallied last year, the stock has been weak in 2016 as investors question whether the company can sustain the momentum amid global headwinds.
“GE’s stock has suffered from increasing investor skepticism heading into the quarter,” Steven Winoker, an analyst at Bernstein, said in a note. “While growth this quarter inflected positive, it was below our expectations, and the lowered organic growth guide for the year again calls into question the company’s ability to hit” fourth-quarter targets.
The shares dropped 2.1% to $28.47 at 9:57 a.m. in New York, marking the sharpest decline in the Dow Jones Industrial Average. GE fell 6.7% this year through Thursday, compared with a 4.8% rise in the Standard & Poor’s 500 Index.
“Global growth continues, but at a low level,” Immelt said Friday on a conference call after announcing third-quarter results. “There is sufficient opportunity to achieve our goals. At the same time we plan to control costs tighter as we navigate this environment.”
Orders increased 16% in the third quarter as GE looked to pad its backlog and recover from a weak first half. The figure fell 6% on an organic basis, which excludes the effects of acquisitions and currency exchange.
The order tally was “a little bit better,” but GE has struggled to generate growth this year, Karen Ubelhart, an analyst at Bloomberg Intelligence, said on Bloomberg Television. Given the first-half results, trimming the organic revenue forecast makes sense, she said.
Sales in the oil and gas unit fell 25% in the quarter, the most in the company’s industrial divisions, as GE navigated the enduring slump in the global crude market.
“Our outlook for oil and gas has worsened,” Immelt said, calling the company’s view “realistic” about the industry. “But don’t be mistaken: We still think this is a core GE business.”
Revenue climbed 37% in the power division and increased 5% in GE Aviation. GE Healthcare sales rose 5%, logging its third straight quarter of earnings and revenue growth. Digital and software orders rose 11%, GE said. The company sees software operations as a business that can enhance the value and productivity of industrial equipment.
GE on Friday boosted its share buyback to about $22 billion from $18 billion. The company has also pursued several small acquisitions in recent months to bolster its digital business, supply chain and manufacturing capabilities. The company said last week it would buy LM Wind Power, a maker of turbine blades, for $1.65 billion.
GE also is seeking shareholder approval to buy a pair of 3-D printer companies, Sweden’s Arcam AB and Germany’s SLM Solutions Group AG, for a combined $1.4 billion. GE said Friday that it wouldn’t raise its price for SLM after shareholder Elliott Management Corp., the hedge fund founded by billionaire Paul Singer, called the terms unacceptable.
During the quarter, the 124-year-old company relocated its headquarters to Boston from a longtime suburban home in Fairfield, Connecticut, a move intended to bolster its image as a tech-savvy firm and help recruit engineering talent.
By Richard Clough