General Electric Earnings Higher Driven by Aerospace Segment

General Electric Second Quarter results beat EPS and revenue expectations. GE’s Aerospace segment saw 26% order growth which led to the company’s largest EPS beat in over five years and helped it to generate positive free cash flow of $200 million. GE is still forecasting growth of more than 20% and operating profit of $3.8-$4.3 bln for GE Aerospace. GE is on track to create three independent companies: GE Aerospace, GE HealthCare, and GE Vernova, GE’s portfolio of energy businesses.

GE Second Quarter 2022 Earnings

  • Total revenues (GAAP) $18.6B, +2%; adjusted revenues* $17.9B, +5.0% organically*
  • Profit margin (GAAP) of (1.3)%, +440 bps; adjusted profit margin* 9.3%, +380 bps organically*
  • Continuing EPS (GAAP) of $(0.59), $(0.02); adjusted EPS* $0.78, +$0.56
  • Cash from Operating Activities (GAAP) $0.5B, +$0.9B; free cash flow* $0.2B, $(0.0)B, ex. disc. factoring* +$0.0B
  • Total orders $18.7B, +2%; organic orders +4

GE Chairman and CEO and GE Aerospace CEO H. Lawrence Culp, Jr. said, “The GE team delivered a strong second quarter with growth in orders, revenue, and profit, as well as positive free cash flow. Aerospace was a key driver of our performance this quarter as the industry recovery builds momentum. In higher-margin services, GE delivered double-digit revenue growth, with Aerospace up 47 percent compared to last year.”

GE Aerospace revenue jumped by 27% yr/yr to $6.1 bln. The robust recovery in air travel fueled strong demand for GE’s engines, aircraft parts, and aircraft maintenance and repair services. In addition to pricing actions to offset inflationary pressures. Commercial services revenue pushed the segment margin higher by 1,510 bps yr/yr to 18.7%.

There’s no slowdown in sight, either, as GE is still forecasting growth of more than 20% and operating profit of $3.8-$4.3 bln.

GE Healthcare continues to suffer from supply chain issues in Q2 due to the COVID-related lockdowns in China. The segment lapped a difficult yr/yr comparison from 2Q21 when orders grew by 11% organically. This quarter orders were down by 1% and revenue grew by only 1% to $4.5 bln.

For the rest of FY22, the outlook is mixed with GE nudging its revenue growth forecast higher, guiding for a mid-single-digit increase, compared to its prior guidance of low-to-mid-single-digit growth. Due to inflationary pressures, GE now anticipates segment profit of $3.0 bln, slightly below its original expectation.

Renewable Energy continues to fall behind as orders for wind turbines remain soft, partly due to uncertainty regarding future tax credits for wind generation. At the same time raw materials inflation is impacting manufacturing costs, driving segment margin lower by 1,110 bps yr/yr to (13.5) %. After initially expecting a rebound in 2H22, GE no longer believes that the Renewable Energy unit will see a step-up in orders this year.

Despite comfortably exceeding Q2 estimates, CEO Culp stated GE is still trending toward the lower end of its FY22 outlook, which called for EPS of $2.80-$3.50 and organic revenue growth in the high-single-digit range.

GE Chairman and CEO and GE Aerospace CEO H. Lawrence Culp, Jr. said, “We are improving delivery, price, and cost performance via lean and decentralization. Notwithstanding this progress, much is still uncertain about the external pressures companies are facing at this moment. We continue to trend toward the low end of our 2022 outlook on all metrics except cash, which is lower due to timing of working capital and Renewable Energy-related orders.”

Culp noted that about $1.0 bln in free cash flow is likely to be pushed out due to weak renewable energy orders and supply chain disruptions. Given this muted outlook, it may seem surprising that GE is reacting as positively as it is today, but we believe investors are mostly focusing on the Aerospace segment, which will solely comprise of GE’s business next year.

On track to create three independent companies:

◦ Announced the new branding of GE’s planned future companies: GE Aerospace, GE HealthCare,
and GE Vernova, GE’s portfolio of energy businesses.
Achieved key milestones on the planned GE HealthCare spin: planning to file GE’s confidential
Form 10 shortly; submitted request for IRS private letter ruling; completed consultation with the
European Works Council; announced GE HealthCare will be listed on The Nasdaq Global Select
Market under the ticker symbol “GEHC.”

Source: GE, TradersCommunity

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