General Electric's (NYSE:GE) year will be shaped by aviation, and to a large extent by developments around the Boeing 737 MAX, because it's unlikely to get much help from its other segments.

That's the key conclusion to be drawn from looking at the earnings report from GE's biggest rival, Germany's Siemens (OTC:SIEGY). In other words, buying stock in GE means taking on a similar kind of risk inherent in buying Boeing stock. Here's why.

A bear and bull on a stock price sheet.

Image source: Getty Images.

Siemens confirms weakness in key areas

Siemens and the companies in which it owns a majority stake, Siemens Healthineers (OTC:SMMNY) and Siemens Gamesa Renewable Energy (OTC:GCTAF), or SGRE, compete with GE in various end markets. Unfortunately, nearly all of them are showing signs of stress. In fact, the recent earnings from Siemens merely confirmed the weakness in these end markets already apparent in General Electric's earnings. Here's a look at GE's profit by segment in 2019.

GE industrial segment profit.

Data source: General Electric presentations.

As you can see, aviation was already the key earnings generator for GE in 2019, and its importance is going to increase in 2020 because GE is about to sell its biopharma business to Danaher.

Moreover, the evidence from GE and Siemens shows that GE's most important healthcare solution, imaging, is experiencing weak end demand conditions. Additionally, while there is significant pricing pressure in renewable energy (largely wind power), the gas turbine market -- although stabilizing -- remains weak.

Imaging

After the biopharma sale is done, GE's imaging equipment and services (tomography, MRI scanners, molecular imaging, etc) will contribute over half of its healthcare revenue.

However, growth in organic orders in healthcare systems (which excludes biopharma and pharmaceutical diagnostics) was just 1% "driven by growth in Life Care Solutions, Services, and Ultrasound, partially offset by Imaging," according to GE's earnings release. On the earnings call, GE CEO Larry Culp put imaging weakness down to " market dynamics in China."

It doesn't help that imaging was also the weak point in Siemens Healthineers' recent quarter. Management maintained its full-year guidance on imaging, and put the disappointing margin performance -- Siemens Healthineers earnings before interest and taxation margin declined to 17.4% in the quarter compared to 19.9% in the same quarter last year -- down to a temporary effect of unfavorable margin mix.

Whichever way you choose to look at it, it's clear that Siemens didn't sell as much higher margin imaging equipment as it expected to, and GE's imaging orders growth declined. Throw in the fact that GE is selling the growth business in its healthcare segment (biopharma) to Danaher, and there isn't a lot to get excited about from GE's healthcare segment in 2020.

Renewable energy and power

Here's a comparison of the most recent quarters for SGRE and GE renewable energy. There's clearly ongoing pressure in the industry, and regarding onshore wind power, Culp noted that "We need to see that convert more directly in the margins and cash" during the earnings call.

Siemens Gamesa margin also contracted in the quarter, with pricing making a negative contribution. CFO David Mesonero remarked that "Competitive pricing is common to all markets we operate: Onshore, Offshore and Services. Some good news is that we are nearly done with our less-profitable Onshore contracts, and we see better margins in our new order intake."

Company

Q1 Revenue

YOY Change

Q1 Profit

Profit Margin

YOY Change

Siemens Gamesa

2.00 billion euros

(11.5%)

(136 million euros)

(6.8%)

(1200bp)

GE renewable energy

$4.75 billion

2%

($197 million) 

(4.1%)

(360bp)

Data source: Company presentations. bp is basis points where 100bp=1%.

Turning to power, Siemens continues to expect only moderate growth in revenue growth in 2020 for its gas & power segment.  GE is undoubtedly making progress in it power segment, but it's largely down to executing better, and what GE CFO Jamie Miller described as a "robust fall outage season" (power outages boost GE services revenue). There's still little help from end markets, though. The 30% drop in orders in the fourth-quarter resulted in backlog being flat compared to last year.

What it all means for GE investors

Putting all of this together, the earnings and outlook from Siemens suggest that GE won't get much help from end markets in power, renewable energy, and healthcare in 2020. In other words, the swing factor in its earnings will be even more tied to aviation, and of course the 737 MAX.

If you are confident in a timely return to service of the 737 MAX, then it shouldn't be a concern, However, investors nervous about, say, not holding Boeing until a return to service occurs, should also be concerned over GE.