WEBVTT - Bloomberg's Ubelhart on GE, Honeywell, Industrials Space(Audio)

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<v Speaker 1>Global business news twenty four hours a day. If Bloomberg

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<v Speaker 1>I'm Charlie Powlett's stocks continue to trade near records the

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<v Speaker 1>Biogen adding to their strongest weekly increases since at least March.

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<v Speaker 1>by a single stock when you can invest in the

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<v Speaker 1>entire sector of visits sector sp d r S dot

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<v Speaker 1>Com recall sector et F down Industrial is up thirty five,

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<v Speaker 1>a gain of two tenths of one percent, as Stack

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<v Speaker 1>up twenty six to fifty one, a gain of five

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<v Speaker 1>tenths one percent. Gold down seven fifty three, a drop

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<v Speaker 1>of sixtenths of one percent. I'm Charlie Tell and that's

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<v Speaker 1>a Bloomberg business flash. You're listening to taking stock with

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<v Speaker 1>bim box at Kathleen Hayes on Bloomberg Radio. Shares of

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<v Speaker 1>General Electric are down about one point nine percent. General

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<v Speaker 1>Electric selling fewer locomotives and less oil field equipment. Global

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<v Speaker 1>uncertainty taking its toll on the demand for big ticket

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<v Speaker 1>industrial products. Here to tell us more about the results

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<v Speaker 1>of these industrial companies is Karen Ebilhart. Karen is our

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<v Speaker 1>industrials analyst for Bloomberg Intelligence, providing unique and real time

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<v Speaker 1>research and context in a variety of industries as well

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<v Speaker 1>as market and government factors that affect businesses are terminal.

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<v Speaker 1>Customers can access this function by just typing b I

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<v Speaker 1>go on the Bloomberg Karen, thank you very much for

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<v Speaker 1>spending time, and then tell me about GE. Boy, this

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<v Speaker 1>says it's not the same GE that it was tech

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<v Speaker 1>hated go by any means. What's going on at GE.

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<v Speaker 1>I think they're having the same problem that everybody is

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<v Speaker 1>having at this point in industrial land is that they

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<v Speaker 1>had a negative another tough quarter in terms of organic growth.

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<v Speaker 1>It was down one percent, as it was in the

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<v Speaker 1>first quarter. The confusion and g E is that the

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<v Speaker 1>company maintained an organic growth rate of two to four percent,

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<v Speaker 1>and first half they're down one percent. Where is the

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<v Speaker 1>growth going to come from? And most of the end

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<v Speaker 1>markets that they participate and we are not looking at,

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<v Speaker 1>you know, and even a modest growth environment for a

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<v Speaker 1>lot of a lot of the equipment. So there's skepticism

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<v Speaker 1>around why didn't you just lower your organic growth rate?

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<v Speaker 1>But they didn't because they said that they the best

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<v Speaker 1>estimate is this is from Jeff Bornstein, the chief financial officer.

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<v Speaker 1>He said, the best estimate is as you describe, the

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<v Speaker 1>second half will be better than the first half. But

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<v Speaker 1>that still reflects a world that's pretty difficult. Uh. Their way,

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<v Speaker 1>everything weighs on their power business. They there big turbines.

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<v Speaker 1>They're going to be shipping six of them in the

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<v Speaker 1>second half. Basically, that's what he that that they said

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<v Speaker 1>is going to drive a bounce in organic growth, which,

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<v Speaker 1>by the way, they need over five percent to make

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<v Speaker 1>their full year number. They've got a ship an awful

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<v Speaker 1>lot of turbines to make up that number. Oil and

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<v Speaker 1>gas comparisons might be a little bit easier as well,

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<v Speaker 1>but we're talking big declines in oil and gas as well.

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<v Speaker 1>I think it's going to be a stretch alright, Well,

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<v Speaker 1>oil and gas is not something you necessarily think about

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<v Speaker 1>with General Electric except for let's say the last maybe

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<v Speaker 1>three to four years. Correct. Yeah, they acquired into They

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<v Speaker 1>always had a turbine business, some of which went into energy,

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<v Speaker 1>but then they acquired into a number of businesses to

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<v Speaker 1>get more involved in the uh, in the production end

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<v Speaker 1>of it as well. And those orders are down thirty

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<v Speaker 1>five percent and sales are down, uh, you know, over

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<v Speaker 1>twenty percent. And they have long lead time stuff, so

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<v Speaker 1>they didn't see it as early as some of the

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<v Speaker 1>oil service type guys now, but now they're starting to

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<v Speaker 1>see double digit revenue declines and margins are cut in half,

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<v Speaker 1>and we're not done with that decline. Um. There is

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<v Speaker 1>some good news. The airspace business is doing okay, the

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<v Speaker 1>health care business is doing okay. Um, but the big

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<v Speaker 1>ugly equipment is uh, you know, is really going to

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<v Speaker 1>be stretched and and the global economy isn't gonna give

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<v Speaker 1>them any help. Turn your attention now, tell us what's

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<v Speaker 1>going on with Honeywell? Uh, Honeywell, I think was down

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<v Speaker 1>today because you know, they've been a company that can

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<v Speaker 1>just beat on you know, slightly better organic growth and

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<v Speaker 1>than other companies and always get it in margin. Well,

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<v Speaker 1>they had a disappointing organic growth uh UM quarter as well,

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<v Speaker 1>and they lowered their organic growth number to barely growth

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<v Speaker 1>from one to two to one percent. And they're starting

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<v Speaker 1>to you can start to see in my opinion, that

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<v Speaker 1>they're starting to push on a string they had just

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<v Speaker 1>don't have enough volume either. They and and uh they

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<v Speaker 1>are one that has beat consistently. Now, they did raise

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<v Speaker 1>the lower end of their their number, their estimate because

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<v Speaker 1>they beat by a couple of cents. But I think

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<v Speaker 1>they're teetering a little bit here too, and they've squeezed

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<v Speaker 1>a lot out on the margin side. They probably have

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<v Speaker 1>some more, but I think we're getting to latter stages

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<v Speaker 1>of that. They all need a little bit of top

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<v Speaker 1>line to really get the story going. And both of

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<v Speaker 1>them have been good stocks. So that's the problem with

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<v Speaker 1>with the S and P up two percent, industrials up

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<v Speaker 1>eight they were both up fifteen, and you've got to

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<v Speaker 1>deliver if you're if you you're that out ahead of

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<v Speaker 1>everybody else. Well, as you say, honey, honeywell, the shares

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<v Speaker 1>down about two and a half percent today. Year to date,

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<v Speaker 1>they're up about eleven and a half percent Honeywell, uh,

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<v Speaker 1>and it's disparate businesses. Will they be better separated into

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<v Speaker 1>different units? Well, you know, they just announced that they

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<v Speaker 1>are going to split one of their businesses into two units.

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<v Speaker 1>It actually was two units and they folded it together.

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<v Speaker 1>Now that yeah. I mean the theory of these companies

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<v Speaker 1>is that diversity does UM lower your volatility, and in

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<v Speaker 1>fact that's true. I mean look at them compared to Caterpillar, right,

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<v Speaker 1>I mean Caterpillars in single deep cyclical businesses. UM. I

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<v Speaker 1>think the portfolio, you know, can fit under the you know,

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<v Speaker 1>definition of a multi industrial UM. But they do. They

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<v Speaker 1>have identified businesses they're going to grow faster, and they're

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<v Speaker 1>going to do a lot of M and A and that.

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<v Speaker 1>So the composition of the company may may change, you know,

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<v Speaker 1>airspace maybe a little bit less because they're growing in

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<v Speaker 1>other businesses. UM. I think the picture fits UM in

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<v Speaker 1>a in a company that wants to be have smoother,

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<v Speaker 1>you know, sales and earning streams. So well, I'm looking

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<v Speaker 1>at the sales increase at Honeywell, what you're talking really

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<v Speaker 1>about is the acquisitions that were made by that automation

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<v Speaker 1>and control solutions unit, right, yeah, yeah, that that really

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<v Speaker 1>that that really helped and um, and they're gonna do

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<v Speaker 1>they clearly said today. You know, they're still not done.

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<v Speaker 1>They've got eight billion dollars if they keep to buy more.

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<v Speaker 1>Um that's before cash, if they keep the current leverage

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<v Speaker 1>that they have. But they can you know, they can

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<v Speaker 1>leverage a little bit more too. So they're going to

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<v Speaker 1>keep using acquisitions I think to help them a little bit.

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<v Speaker 1>But Elster and some of the safety products, uh, those

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<v Speaker 1>are going to be good businesses for them going ahead. UM.

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<v Speaker 1>I don't think they're bad businesses with big margin opportunity

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<v Speaker 1>like you have at Awesome because they bought decent businesses.

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<v Speaker 1>But they've got probably a little bit of growth profile

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<v Speaker 1>and uh, you know, I think they can help off

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<v Speaker 1>it's uh, you know some of the slowdown and more

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<v Speaker 1>and more the mature markets. Well, I'm glad you mentioned

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<v Speaker 1>Awesome and that's the ge Engineering purchase. Can you give

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<v Speaker 1>us any details about how that's working out. That's actually

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<v Speaker 1>on the synergy basis, they're actually a little bit ahead.

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<v Speaker 1>They're about break even this year. They expect to get

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<v Speaker 1>a nickel and earnings. UM, They're they're doing a little

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<v Speaker 1>better on the on the cost side. You really can't

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<v Speaker 1>see it yet, but they they actually um uh you know,

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<v Speaker 1>did a little bit made a little bit of money

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<v Speaker 1>net with the cost savings this quarter. I think they

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<v Speaker 1>were expected to still lose in the second quarter and

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<v Speaker 1>then do better in the second half. There's a lot

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<v Speaker 1>to fix there, and is a good operator. I think

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<v Speaker 1>I think they'll pull that off. Plus, just you know,

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<v Speaker 1>they have thirty cent of their sales are parts and

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<v Speaker 1>service gees. It's that's a margin opportunity just by putting

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<v Speaker 1>all some product through the ge parts service business, which

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<v Speaker 1>is a great business. So that's almost something they don't

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<v Speaker 1>even have to fix that. They just have to you know,

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<v Speaker 1>sell more parts. Uh. And then of course there's a

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<v Speaker 1>lot to do internally to improve it because we know

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<v Speaker 1>it was not a particularly well run company. Um. And

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<v Speaker 1>it does fit, you know, it does feel an itch

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<v Speaker 1>fill a product toll for them in that business. So

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<v Speaker 1>I actually like the deal and I think over time

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<v Speaker 1>it will pay off. I just want to uh note

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<v Speaker 1>that you know, when we were talking about Honeywell that

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<v Speaker 1>the split is the home and building technology business and

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<v Speaker 1>the safety and productivity solutions business. The description that you're

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<v Speaker 1>offering for g E as well as Honeywell, can that

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<v Speaker 1>be applied to all of these big industrial companies around

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<v Speaker 1>the world. I means everyone's suffering the same thing. Yes,

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<v Speaker 1>the only the one exception I would say is companies

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<v Speaker 1>that have a little bit more consumer exposure doing a

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<v Speaker 1>little bit better. Uh I. T W is about sixty

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<v Speaker 1>of sales tied to Yes, yes, like food, equipment, auto

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<v Speaker 1>Believe it or not. Their auto aftermarket business is growing

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<v Speaker 1>very nicely, so they're insulated a little bit from some

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<v Speaker 1>of these heavy, deep, you know, capital goods type businesses

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<v Speaker 1>everybody else I mean, and they're organic. Growth isn't terrific.

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<v Speaker 1>It's just a little better. But this global economy isn't that.

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<v Speaker 1>We're not getting any help anywhere. The one area industrials,

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<v Speaker 1>in industrials that was okay is the North American construction business,

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<v Speaker 1>and now that's starting to show signs of getting tired.

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<v Speaker 1>The growth rate there is slowing as well. United Technology

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<v Speaker 1>is suffering the same issues. Yes, yes, um, they've got

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<v Speaker 1>a big you know, they've got a big construction business

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<v Speaker 1>as well with Carrier and their Odus elevator business, although

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<v Speaker 1>that's hurt more by China than anything. But it's really

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<v Speaker 1>hard to get excited about most of these industrial and markets.

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<v Speaker 1>So if you can't get excited about them, do you

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<v Speaker 1>think that the Federal Reserve is also watching the performance

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<v Speaker 1>of these companies in order to gauge perhaps interest rate policy.

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<v Speaker 1>I you know, they're certainly a factor. They're all on

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<v Speaker 1>the FED. You know the Fed. You know committees that

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<v Speaker 1>they I know, honeywell they talked to regularly. Um. But

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<v Speaker 1>the consumer seems to be doing a little bit better,

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<v Speaker 1>and you know, they're actually a bigger part of the economy.

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<v Speaker 1>So I think as long as the consumer looks like

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<v Speaker 1>he's getting incrementally better, they'll be a little there. It

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<v Speaker 1>won't be quite as worried about the industrial danna Her

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<v Speaker 1>Eaten also falling into the same category. I know, we're

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<v Speaker 1>going to get the results from danna Her next week.

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<v Speaker 1>Dan Her has changed their profile so significantly by getting

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<v Speaker 1>rid of those industrial businesses that they have a big

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<v Speaker 1>medical healthcare component. They have some industrial businesses, but again

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<v Speaker 1>they're growthier like digital printing, things like that, so they're

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<v Speaker 1>kind of a different story. They should they should grow, um,

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<v Speaker 1>you know, better than these traditional Maltese. Eaten has had

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<v Speaker 1>a problem with the organic growth there got a huge

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<v Speaker 1>electrical exposure, and they have a truck exposure which isn't

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<v Speaker 1>in and of itself that big, but it's down. So

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<v Speaker 1>a deep cyclical like that can hurt when nothing else

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<v Speaker 1>is able to offset it. So yeah, I think we're

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<v Speaker 1>gonna have the same problem there. I want to thank

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<v Speaker 1>you very much. It's not great news, but I want

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<v Speaker 1>to thank you for illuminating nothing less. Karen yubile Heart

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<v Speaker 1>is Industrial's analyst for Bloomberg Intelligence, giving us details on

0:10:58.240 --> 0:11:02.640
<v Speaker 1>General Electric, Honeywell, and the industrial sector. Of course, Bloomberg

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<v Speaker 1>Intelligence provides real time research and context on a variety

0:11:05.760 --> 0:11:09.599
<v Speaker 1>of industries. Terminal customers can access this function at b

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<v Speaker 1>I go. This is Bloomberg