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Bloomberg's Ubelhart on GE, Honeywell, Industrials Space(Audio) · Bloomberg Intelligence

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  Speaker 1: bim box at Kathleen Hayes on Bloomberg Radio. Shares of
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  Speaker 1: General Electric are down about one point nine percent. General
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  Speaker 1: Electric selling fewer locomotives and less oil field equipment. Global
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  Speaker 1: uncertainty taking its toll on the demand for big ticket
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  Speaker 1: industrial products. Here to tell us more about the results
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  Speaker 1: of these industrial companies is Karen Ebilhart. Karen is our
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  Speaker 1: industrials analyst for Bloomberg Intelligence, providing unique and real time
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  Speaker 1: Customers can access this function by just typing b I
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  Speaker 1: go on the Bloomberg Karen, thank you very much for
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  Speaker 1: spending time, and then tell me about GE. Boy, this
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  Speaker 1: says it's not the same GE that it was tech
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  Speaker 1: hated go by any means. What's going on at GE.
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  Speaker 1: I think they're having the same problem that everybody is
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  Speaker 1: having at this point in industrial land is that they
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  Speaker 1: had a negative another tough quarter in terms of organic growth.
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  Speaker 1: It was down one percent, as it was in the
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  Speaker 1: first quarter. The confusion and g E is that the
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  Speaker 1: company maintained an organic growth rate of two to four percent,
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  Speaker 1: and first half they're down one percent. Where is the
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  Speaker 1: growth going to come from? And most of the end
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  Speaker 1: markets that they participate and we are not looking at,
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  Speaker 1: you know, and even a modest growth environment for a
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  Speaker 1: lot of a lot of the equipment. So there's skepticism
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  Speaker 1: around why didn't you just lower your organic growth rate?
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  Speaker 1: But they didn't because they said that they the best
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  Speaker 1: estimate is this is from Jeff Bornstein, the chief financial officer.
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  Speaker 1: He said, the best estimate is as you describe, the
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  Speaker 1: second half will be better than the first half. But
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  Speaker 1: that still reflects a world that's pretty difficult. Uh. Their way,
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  Speaker 1: everything weighs on their power business. They there big turbines.
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  Speaker 1: They're going to be shipping six of them in the
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  Speaker 1: second half. Basically, that's what he that that they said
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  Speaker 1: is going to drive a bounce in organic growth, which,
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  Speaker 1: by the way, they need over five percent to make
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  Speaker 1: their full year number. They've got a ship an awful
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  Speaker 1: lot of turbines to make up that number. Oil and
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  Speaker 1: gas comparisons might be a little bit easier as well,
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  Speaker 1: but we're talking big declines in oil and gas as well.
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  Speaker 1: I think it's going to be a stretch alright, Well,
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  Speaker 1: oil and gas is not something you necessarily think about
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  Speaker 1: with General Electric except for let's say the last maybe
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  Speaker 1: three to four years. Correct. Yeah, they acquired into They
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  Speaker 1: always had a turbine business, some of which went into energy,
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  Speaker 1: but then they acquired into a number of businesses to
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  Speaker 1: get more involved in the uh, in the production end
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  Speaker 1: of it as well. And those orders are down thirty
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  Speaker 1: five percent and sales are down, uh, you know, over
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  Speaker 1: twenty percent. And they have long lead time stuff, so
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  Speaker 1: they didn't see it as early as some of the
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  Speaker 1: oil service type guys now, but now they're starting to
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  Speaker 1: see double digit revenue declines and margins are cut in half,
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  Speaker 1: and we're not done with that decline. Um. There is
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  Speaker 1: some good news. The airspace business is doing okay, the
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  Speaker 1: health care business is doing okay. Um, but the big
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  Speaker 1: ugly equipment is uh, you know, is really going to
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  Speaker 1: be stretched and and the global economy isn't gonna give
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  Speaker 1: them any help. Turn your attention now, tell us what's
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  Speaker 1: going on with Honeywell? Uh, Honeywell, I think was down
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  Speaker 1: today because you know, they've been a company that can
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  Speaker 1: just beat on you know, slightly better organic growth and
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  Speaker 1: than other companies and always get it in margin. Well,
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  Speaker 1: they had a disappointing organic growth uh UM quarter as well,
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  Speaker 1: and they lowered their organic growth number to barely growth
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  Speaker 1: from one to two to one percent. And they're starting
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  Speaker 1: to you can start to see in my opinion, that
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  Speaker 1: they're starting to push on a string they had just
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  Speaker 1: don't have enough volume either. They and and uh they
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  Speaker 1: are one that has beat consistently. Now, they did raise
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  Speaker 1: the lower end of their their number, their estimate because
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  Speaker 1: they beat by a couple of cents. But I think
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  Speaker 1: they're teetering a little bit here too, and they've squeezed
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  Speaker 1: a lot out on the margin side. They probably have
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  Speaker 1: some more, but I think we're getting to latter stages
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  Speaker 1: of that. They all need a little bit of top
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  Speaker 1: line to really get the story going. And both of
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  Speaker 1: them have been good stocks. So that's the problem with
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  Speaker 1: with the S and P up two percent, industrials up
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  Speaker 1: eight they were both up fifteen, and you've got to
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  Speaker 1: deliver if you're if you you're that out ahead of
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  Speaker 1: everybody else. Well, as you say, honey, honeywell, the shares
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  Speaker 1: down about two and a half percent today. Year to date,
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  Speaker 1: they're up about eleven and a half percent Honeywell, uh,
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  Speaker 1: and it's disparate businesses. Will they be better separated into
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  Speaker 1: different units? Well, you know, they just announced that they
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  Speaker 1: are going to split one of their businesses into two units.
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  Speaker 1: It actually was two units and they folded it together.
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  Speaker 1: Now that yeah. I mean the theory of these companies
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  Speaker 1: is that diversity does UM lower your volatility, and in
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  Speaker 1: fact that's true. I mean look at them compared to Caterpillar, right,
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  Speaker 1: I mean Caterpillars in single deep cyclical businesses. UM. I
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  Speaker 1: think the portfolio, you know, can fit under the you know,
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  Speaker 1: definition of a multi industrial UM. But they do. They
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  Speaker 1: have identified businesses they're going to grow faster, and they're
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  Speaker 1: going to do a lot of M and A and that.
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  Speaker 1: So the composition of the company may may change, you know,
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  Speaker 1: airspace maybe a little bit less because they're growing in
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  Speaker 1: other businesses. UM. I think the picture fits UM in
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  Speaker 1: a in a company that wants to be have smoother,
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  Speaker 1: you know, sales and earning streams. So well, I'm looking
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  Speaker 1: at the sales increase at Honeywell, what you're talking really
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  Speaker 1: about is the acquisitions that were made by that automation
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  Speaker 1: and control solutions unit, right, yeah, yeah, that that really
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  Speaker 1: that that really helped and um, and they're gonna do
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  Speaker 1: they clearly said today. You know, they're still not done.
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  Speaker 1: They've got eight billion dollars if they keep to buy more.
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  Speaker 1: Um that's before cash, if they keep the current leverage
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  Speaker 1: that they have. But they can you know, they can
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  Speaker 1: leverage a little bit more too. So they're going to
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  Speaker 1: keep using acquisitions I think to help them a little bit.
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  Speaker 1: But Elster and some of the safety products, uh, those
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  Speaker 1: are going to be good businesses for them going ahead. UM.
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  Speaker 1: I don't think they're bad businesses with big margin opportunity
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  Speaker 1: like you have at Awesome because they bought decent businesses.
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  Speaker 1: But they've got probably a little bit of growth profile
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  Speaker 1: and uh, you know, I think they can help off
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  Speaker 1: it's uh, you know some of the slowdown and more
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  Speaker 1: and more the mature markets. Well, I'm glad you mentioned
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  Speaker 1: Awesome and that's the ge Engineering purchase. Can you give
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  Speaker 1: us any details about how that's working out. That's actually
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  Speaker 1: on the synergy basis, they're actually a little bit ahead.
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  Speaker 1: They're about break even this year. They expect to get
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  Speaker 1: a nickel and earnings. UM, They're they're doing a little
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  Speaker 1: better on the on the cost side. You really can't
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  Speaker 1: see it yet, but they they actually um uh you know,
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  Speaker 1: did a little bit made a little bit of money
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  Speaker 1: net with the cost savings this quarter. I think they
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  Speaker 1: were expected to still lose in the second quarter and
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  Speaker 1: then do better in the second half. There's a lot
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  Speaker 1: to fix there, and is a good operator. I think
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  Speaker 1: I think they'll pull that off. Plus, just you know,
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  Speaker 1: they have thirty cent of their sales are parts and
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  Speaker 1: service gees. It's that's a margin opportunity just by putting
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  Speaker 1: all some product through the ge parts service business, which
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  Speaker 1: is a great business. So that's almost something they don't
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  Speaker 1: even have to fix that. They just have to you know,
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  Speaker 1: sell more parts. Uh. And then of course there's a
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  Speaker 1: lot to do internally to improve it because we know
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  Speaker 1: it was not a particularly well run company. Um. And
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  Speaker 1: it does fit, you know, it does feel an itch
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  Speaker 1: fill a product toll for them in that business. So
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  Speaker 1: I actually like the deal and I think over time
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  Speaker 1: it will pay off. I just want to uh note
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  Speaker 1: that you know, when we were talking about Honeywell that
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  Speaker 1: the split is the home and building technology business and
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  Speaker 1: the safety and productivity solutions business. The description that you're
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  Speaker 1: offering for g E as well as Honeywell, can that
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  Speaker 1: be applied to all of these big industrial companies around
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  Speaker 1: the world. I means everyone's suffering the same thing. Yes,
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  Speaker 1: the only the one exception I would say is companies
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  Speaker 1: that have a little bit more consumer exposure doing a
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  Speaker 1: little bit better. Uh I. T W is about sixty
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  Speaker 1: of sales tied to Yes, yes, like food, equipment, auto
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  Speaker 1: Believe it or not. Their auto aftermarket business is growing
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  Speaker 1: very nicely, so they're insulated a little bit from some
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  Speaker 1: of these heavy, deep, you know, capital goods type businesses
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  Speaker 1: everybody else I mean, and they're organic. Growth isn't terrific.
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  Speaker 1: It's just a little better. But this global economy isn't that.
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  Speaker 1: We're not getting any help anywhere. The one area industrials,
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  Speaker 1: in industrials that was okay is the North American construction business,
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  Speaker 1: and now that's starting to show signs of getting tired.
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  Speaker 1: The growth rate there is slowing as well. United Technology
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  Speaker 1: is suffering the same issues. Yes, yes, um, they've got
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  Speaker 1: a big you know, they've got a big construction business
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  Speaker 1: as well with Carrier and their Odus elevator business, although
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  Speaker 1: that's hurt more by China than anything. But it's really
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  Speaker 1: hard to get excited about most of these industrial and markets.
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  Speaker 1: So if you can't get excited about them, do you
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  Speaker 1: think that the Federal Reserve is also watching the performance
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  Speaker 1: of these companies in order to gauge perhaps interest rate policy.
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  Speaker 1: I you know, they're certainly a factor. They're all on
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  Speaker 1: the FED. You know the Fed. You know committees that
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  Speaker 1: they I know, honeywell they talked to regularly. Um. But
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  Speaker 1: the consumer seems to be doing a little bit better,
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  Speaker 1: and you know, they're actually a bigger part of the economy.
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  Speaker 1: So I think as long as the consumer looks like
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  Speaker 1: he's getting incrementally better, they'll be a little there. It
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  Speaker 1: won't be quite as worried about the industrial danna Her
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  Speaker 1: Eaten also falling into the same category. I know, we're
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  Speaker 1: going to get the results from danna Her next week.
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  Speaker 1: Dan Her has changed their profile so significantly by getting
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  Speaker 1: rid of those industrial businesses that they have a big
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  Speaker 1: medical healthcare component. They have some industrial businesses, but again
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  Speaker 1: they're growthier like digital printing, things like that, so they're
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  Speaker 1: kind of a different story. They should they should grow, um,
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  Speaker 1: you know, better than these traditional Maltese. Eaten has had
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  Speaker 1: a problem with the organic growth there got a huge
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  Speaker 1: electrical exposure, and they have a truck exposure which isn't
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  Speaker 1: in and of itself that big, but it's down. So
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  Speaker 1: a deep cyclical like that can hurt when nothing else
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  Speaker 1: is able to offset it. So yeah, I think we're
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  Speaker 1: gonna have the same problem there. I want to thank
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  Speaker 1: you very much. It's not great news, but I want
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  Speaker 1: to thank you for illuminating nothing less. Karen yubile Heart
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  Speaker 1: is Industrial's analyst for Bloomberg Intelligence, giving us details on
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  Speaker 1: General Electric, Honeywell, and the industrial sector. Of course, Bloomberg
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  Speaker 1: of industries. Terminal customers can access this function at b
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  Speaker 1: I go. This is Bloomberg