Bernstein On GE's Q2: A Bit Like Q1, But Worse

General Electric Company GE announced its 2Q16 results, with the EPS beating expectations. The company reaffirmed its 2016 EPS guidance.

Bernstein’s Steven E. Winoker maintains a Market Perform rating on the company, with a price target of $34.

Disappointing 2Q Results

Winoker mentioned, “This was another quarter of less-impressive industrial performance with segment margins contracting, organic revenue declines, and net orders negative.”

The 2Q16 EPS beat was driven by lower restructuring costs and the 14.4 percent Industrial segment margins, which beat the estimate.

However, Winoker pointed out that there were several operational metrics that missed the estimates.

Related Link: GE's Q2 Results Keep It On Track With Overall Plan

Organic growth declined 1 percent again, for the third consecutive quarter, while power organic growth for “core equipment” revenue declined 5 percent.

O&G organic growth fell 22 percent, energy connections was down 4 percent, transportation also decline 6 percent, and appliances and lighting dropped 12 percent.

On a more positive note, healthcare revenue grew 6 percent organically, driven by robust growth in life science.

High Expectations

Management left its 2016 EPS guidance unchanged, despite further FX headwinds, with a large part of the offset being driven by a lower than expected tax rate and expectations of 5 percent organic growth for 2H, which the analyst believes could prove high.

General Electric expects power to rebound to 15 percent organic growth in 2H, while guiding to a 7 percent decline in O&G, from the 18 percent decline seen in 1H.

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