General Electric (GE -3.80%) put out a mixed-bag earnings report before the market opened on Friday, January 20. By the end of the day, shares were down more than 2% from the previous day's close while the S&P 500 rose slightly, indicating that the market wasn't thrilled with the company's lower-than-expected revenue. 

However, the report also contained some bright spots. Here's what investors need to know before deciding how to react. 

General Electric's Q4 results were a mix of bright and dim spots. Image source: Getty Images.

The changes continue

GE has made radical changes to its company in recent years, ditching its stake in NBC Universal and spinning off its consumer credit card business as Synchrony Financial. The company also completed its largest-ever acquisition of Alstom's power business in November 2015. 

These changes continued throughout 2016 as GE continued to try to cut costs, divest its remaining GE Financial holdings, and focus on its core industrial businesses. Early in 2016, GE sold its low-margin appliances business to China's Haier. During the fourth quarter, GE announced it would also sell off its water and industrial solutions businesses, and would merge its oil and gas business with Baker Hughes (BHI) and spin off the result as a new publicly traded company, meaning the changes are likely to continue well into 2017. 

With all of these changes afoot, it can be tricky to evaluate GE as a whole, or to measure its current performance against past results. As CEO Jeff Immelt pointed out in the earnings call, because the Alstom deal closed in November 2015, it's technically organic revenue for Q4 2016, but you'd be justified in excluding it from the organic calculation...or just including it in November and December. Depending on how you decide to count it, quarterly revenue was either flat, down 1%, or up 4% YOY.  

When evaluating GE moving forward, investors will need to keep an eye on the whole picture...a picture that's constantly evolving.

Orders and services

Organic revenue growth for the year was tepid (between 0% and 4%, depending again on how you count the Alstom acquisition), and growth in organic orders, including Alstom, sat at a modest 5%. However, those numbers don't tell the whole story.

First of all, remember that GE has a massive backlog (orders that have been received but not yet delivered). The backlog actually grew in 2016 by $6 billion to $321 billion -- a record high -- indicating that the company is still receiving more orders than it can process. That's a good sign for the company, because it indicates that demand is still high for GE's products and services.

Speaking of services, Immelt revealed on the earnings call that services orders experienced massive growth of 20% during the fourth quarter. That's very good, because services revenue is much more profitable than equipment revenue for the company.  Software orders, including industrial platform Predix orders, grew 36% during the quarter, signaling that GE is having success building out its "digital industrial" business. 

The whole menu

Evaluating GE's performance is kind of like evaluating a restaurant's food. If the pizza is fantastic but the spaghetti is overcooked, do you give it a good or a bad review? 

Likewise, with so many business units in so many different sectors -- oil and gas, medical equipment, transportation, etc. -- saying that GE's revenue was lackluster this quarter ignores the massive number of variables within the company. And in fact, revenue in some sectors was fantastic. Renewable energy quarterly revenues were up 29% YOY, with power revenues up 20%. Aviation and healthcare also saw modest gains of 7% and 3% YOY, respectively.

On the surface, it appears that the energy connections & lighting business had the worst quarter, with revenues down 29%...but that was the segment that included the appliances business, so once you factor that out, revenues actually grew by a respectable 9% YOY. 

The biggest disappointments were transportation and -- as usual -- oil & gas, which saw revenues fall by 23% and 22% YOY. While the oil and gas segment has been weak for years due to low oil prices -- and will likely soon be merged with Baker Hughes and spun off -- the weakness in the transportation unit is more troubling.

The transportation drop was due in large part to fewer locomotive shipments: 171 vs. 320 in Q4 2015. Unfortunately, this weakness in transportation may continue. The company received zero locomotive orders in 2016 -- none -- and anticipates few in 2017, which will continue to affect transportation revenues. The silver lining here is that transportation is GE's smallest unit with annual revenue of just $4.7 billion (out of total industrial revenues of $113.2 billion), so this weakness will have a minimal impact on the company as a whole. Also, services orders in transportation are growing by leaps and bounds -- up 101% in 2016 -- and may help to pick up some of the slack.

Investor takeaway

Although the quarterly and full-year results were a mixed bag, GE still managed to return more than $30 billion in cash to shareholders in 2016 through dividends and share buybacks. Its ongoing efforts to streamline its businesses by selling GE Capital assets and spinning off its underperforming oil and gas unit will also benefit shareholders in the long run, as will its ongoing development of higher-margin services offerings. GE is in the midst of a major transformation, so it makes sense that things are in a state of flux.

In the aftermath of the earnings report, the stock has continued its slide and is down nearly 6% in 2017. This may represent a good buying opportunity for investors who believe that GE will emerge from its transformation as a stronger company and a good long-term investment.