However, Siemens ( SIEGY -0.89%) and GE are aggressively reducing capacity, suggesting that pricing competition might get less intense. The pessimistic case is built on the idea that there's overcapacity in the gas turbine market, and there may also be a structural problem due to the falling cost of renewable energy making it relatively more attractive than gas for electricity production. On a more positive note, if you can think beyond the near-term risk and the current weakness in end markets, there are some reasons for optimism.
Simply put, GE is going to have to start demonstrating some improvement in order for investors to feel fully comfortable with even the tepid outlook given above. On the negative side, since November 2017, management has been talking about improving its power services profitability - particularly in transactional services where guidance calls for margin and revenue expansion in the next couple of years - but as yet, it hasn't shown up in the numbers. Culp has made great strides in restoring the credibility of GE's guidance, but there are still question marks around the turnaround strategy. Heavy-duty gas turbine orders have roughly halved since 2015 and made GE's acquisition of Alstom's energy assets look like one of the worst deals of the decade. The power segment has suffered from declining end-market demand in the last few years. Turnaround at GE Power is a debating point GE's cash flow should improve in the coming years. Healthcare and renewable energyĬulp believes that after the sale of the biopharma business to Danaher, GE Healthcare "is going to be a $17 billion imaging business with mid-teens operating margins, with good low- to mid-single-digit growth opportunities," and the dip in FCF in 2019 is largely down to a combination of "separation costs, supply chain finance transition and compensation timing." Since these issues are nonrecurring, the outlook for FCF growth in 2020 and beyond seems reasonable. Meanwhile, GE has many years of servicing the existing CFM56 engine (Boeing 737 and Airbus A320) ahead of it too. In case you're wondering, the lackluster cash flow performance in the next couple of years is largely down to the fact that a step up in LEAP production is pressuring margin expansion - the real money made in aircraft engines is made a few years afterward when the engines start to be serviced. Provided the Boeing 737 MAX gets back in service - the LEAP engine (made by a GE joint venture, CFM International, and also available on the Airbus A320 NEO) is the sole engine option on it - then GE Aviation has a bright future.
Coal-related carbon emissions are anticipated to drop by 10.7% in 2020, while natural gas emissions are expected to rise 1.3%.įinally, nuclear power generation is expected to drop slightly below its current 20% in 2021, based on the anticipated retirement of five reactors during that time.The answer is that the near-term outlook is somewhat misleading because there are a number of headwinds - across all four key segments - that will hold back earnings in the next couple of years, but they are likely to dissipate in the future. Small-scale solar is expected to add 11 GW in that time.Īs a result of decreased electricity production from cooler temperatures forecast for this summer, decreased coal-fired generation, and an increase in renewables, carbon emissions from the broader energy sector are anticipated to drop 2% in 2020 and another 1.5% in 2021. Solar installations will be dominated by utility-scale growth, expected to grow by 26 GW over the next two years. The production tax credit for onshore wind secured an extension through 2021, meaning the lack of a credit isn't anticipated to have an impact on wind capacity until after 2021, according to EIA. Wind power capacity is expected to hit 125 GW in 2020, up 19 GW from last year, and 130 GW in 2021. electricity production in 2020, and 22% in 2021, up from 17% in 2019. Meanwhile, renewables growth is expected to rise steadily, making up 19% of U.S. Though natural gas is projected to remain stable as a fuel source, EIA anticipates prices for the fuel will rise 9% in 2021, leading to higher wholesale electricity rates that year. Electric power projections over the next two years are consistent with trends the sector has seen over the past few years - low cost natural gas and renewables are undercutting coal prices, leading to rapid plant retirements.
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