G.E. Announces Progress on Cost-Cutting, but Risks Still Lurk

The General Electric plan is set. The company said last month that it would shrink to just three major operations: jet engines, electric power generators and wind turbines.

Now, investors and analysts are focused on the performance of those industrial businesses and whether the company can avoid further nasty surprises in its trouble-prone finance arm.

General Electric’s second-quarter results, which were announced on Friday, showed that the company is making progress in cutting costs and that its aviation business is thriving. But it has not yet reversed its fortunes and halted its decline, as its ailing power-generation unit in particular continues to contract.

G.E. reported a 30 percent falloff in net profit to $615 million. After an adjustment for one-time charges, the preferred yardstick of Wall Street analysts, the company reported earnings of 19 cents a share. That was slightly higher than analysts’ average forecast of 17 cents a share, as compiled by Thomson Reuters.

Revenue for the quarter rose 3 percent to $30.1 billion, somewhat above the consensus Wall Street estimate of $29.3 billion.

In a conference call with analysts, John Flannery, G.E.’s chief executive, said the second-quarter report contained signs of “significant progress,” including expenses being trimmed by $1.1 billion so far this year against a target of more than $2 billion for the full year. Yet he cautioned that 2018 would be “a reset year” in a longer campaign of corporate renewal.

“The path is clear,” said Mr. Flannery, who became chief executive last August. But he also observed that it would be “a multiyear transformational journey.”

In an interview, Jamie Miller, G.E.’s chief financial officer, said she expected a strong and improving performance across the company’s industrial businesses, except the power unit, in the second half of 2018. Still, G.E. tempered some expectations for the year, saying that profit and cash flow would be toward the low end of the company’s previous forecasts.

After the report, G.E. shares declined by more than 4 percent. The value of the company’s shares has been cut in half in the past year.

Any turnaround at the company will probably require “a long, hard slog,” said Steven Winoker, an analyst at UBS.

Since he took over, Mr. Flannery has been cutting costs and shedding operations in a push to create a “simpler and stronger” company.

The biggest move came last month, when Mr. Flannery announced that G.E. would spin off its health care business and sell its multibillion-dollar stake in Baker Hughes, a major producer of oil field equipment.

The three remaining businesses — aviation, power and renewable energy — accounted for 60 percent of the company’s $122 billion in revenue last year.

The jet engine division remains a powerhouse for G.E. In the second quarter, its revenue rose 13 percent, to $7.5 billion, and its operating profit increased 7 percent, to $1.5 billion. Even a cyclical dip in its profit margins was a sign of strength. Margins slipped as the company invested to expand production of its jet engines to meet brisk demand.

The health care business also had a solid quarter. Sales increased 6 percent, to $5 billion, and profit rose 12 percent, to $926 million. The division makes equipment that includes M.R.I. machines and products that aid cellular technology research.

The big weakness in G.E.’s industrial portfolio is its large power-generation business. It has cutting-edge technology, analysts say.

But the power division badly misjudged a decline in demand, far more than its competitors did. The depth of the problem became apparent shortly after Mr. Flannery took over.

The power-generation business continued its decline in the second quarter. Revenue fell 19 percent, to $7.6 billion, and operating profit dropped 58 percent to $421 million.

“G.E. now has one bad business, and it’s going to take time to fix it, two or three years,” said Scott Davis, chief executive of Melius Research, an independent financial analysis firm.

Another problem for G.E. is the uncertainty surrounding its finance unit, GE Capital. It has been pared back sharply in recent years, an initiative begun by Mr. Flannery’s predecessor, Jeffrey R. Immelt.

At its peak, when the financial crisis hit, GE Capital had assets of more than $600 billion. That total is now down to about $136 billion, but there are lingering risks.

This year, the company took a multibillion-dollar charge and set aside $15 billion to pay for obligations in GE Capital, mainly related to long-term-care policies. The company is also in talks with the Justice Department to settle claims that some of its mortgage-lending practices violated the law.

GE Capital remained a drag on the company’s performance, reducing G.E.’s earnings by $207 million in the quarter. For the year, the company said the finance business should break even.