General Electric $GE Earnings Miss On Power Performance

General Electric reported worse than expected earnings on Friday October 20 before the market opened.  The stock has been moving the opposite to the general market with $GE near 2 year lows as the S&P and Dow trade at all time highs. $GE was down nearly 5% after the release.

General Electric reported worse than expected earnings on Friday October 20 before the market opened.  The stock has been moving the opposite to the general market with $GE near 2 year lows as the S&P and Dow trade at all time highs. The stock was down almost 5% pre market open after the release.

GE CEO FlanneryNew GE CEO Flannery Putting his own stamp on the company

Caution hangs over the stock as new CEO John Flannery took over in August and has been putting his own stamp with executive and boardroom changes. He also has been cutting operational costs and absorbing the Baker Hughes merger. Analysts are concerned the company is out of step and that its dividend is vulnerable.

Earnings:  Earnings fell to $2.55 billion, or $0.29 per share down from $2.87 billion, or $0.32 per share for Q316 .Revenue rose 14.3% to $33.47 billion, up from $29.27 billion last year. Missed on expected EPS of 50 cents but beat on revenue of $31.92 billion.

Reaction: General Electric $GE  Pre Market 22.46 -$1.124.79

“While a majority of our businesses had solid earnings performance, this was offset by a decline in power performance in a difficult market.”

“This was a very challenging quarter,” CEO Flannery

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$GE said its orders improved 11% in 3Q17 to $29.8Bil, while Backlog increased 3% to $328.0Bil.

  • Revenues in the oil and gas segment rose 81% year over year in the quarter from $2.96 billion to $5.37 billion, reflecting the inclusion of Baker Hughes. The Baker Hughes acquisition also accounted for a 14.4% increase in the company’s consolidated revenues.
  • Power segment revenues fell 4% to $8.68 billion and profits tumbled a staggering 51%. In its presentation, GE referred to “ongoing business challenges” in the power segment.
  • Renewable energy revenues were up 5% to $2.91 billion and profits rose 27% to $257 million. Operating profit margin rose 1.5 points to 8.8%.
  • Revenues in the company’s aviation segment sales rose 8% at $6.82 billion and profits rose 12% to $1.68 billion. Operating profit margin rose 0.9 points to 24.6%.
  • The health care segment saw revenues rise 5% to $4.72 billion, with profits of $820 million (up 14%) and operating margin up 1.4 points to 17.4%.
  • Operating cash flow from GE’s continuing industrial operations, adjusted to exclude deal taxes and pension plan funding, fell from $2.9 billion to $1.74 billion year over year in the quarter.

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Outlook

For FY17, $GE expects adjusted earnings to be $1.05 – $1.10 per share, compared to the prior guidance of $1.60 – $1.70 per share

“We believe that the new leadership team at Power and the cost actions that we are taking will better position the company in 2018 and beyond . We are focusing on redefining our culture, running our businesses better, and reducing our complexity.” Flannery said

GE At 2 Year Lows After Trend Line Break

GE Monthly 10 15 17

For our earlier forecast go here: GE Consensus Forecast

Analysts expect EPS to improve 56%  to 50 cents with revenue rising 9% to $31.92 billion.

If congress can pass regulatory rollbacks after the GOP’s unsuccessful attempt to replace the Affordable Care Act the company as much to gain was the theory but the stock price shows little faith.

JPMorgan’s Stephen Tusa Bearish Note on GE Last Week

Reaffirming underweight on GE stock.

After the $GE leadership moves JPMorgan issues a negative note on the company. They wrote:

“Core fundamental challenges are worse than consensus is currently discounting,”

“Not only is the baseline of the now hotly debated ‘reset’ likely lower, but what we think investors are ignoring is the trend line on the businesses, some of which have secular issues (i.e. implications for multiple), a hole that is unlikely to be dug out of with simple cost cuts alone,” JPMorgan continued.

Note CEO John Flannery has signaled that a current EPS goal of $2 for 2018 may be too high.

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