Industrials

GE Stock Gets a Lift From Earnings Warning

When General Electric Co. (NYSE: GE) reported fourth-quarter results in January, the company also provided an outlook for 2020. The coronavirus pandemic led GE to revise that outlook in early March, and on Thursday morning the company withdrew that March revision.

Let’s review. In January, GE expected revenues from its four segments to grow organically in the low-single-digit range. Adjusted profit margin growth for the industrial segments was forecast in a range of 0 to 75 basis points, and adjusted EPS for the year was forecast in a range of $0.50 to $0.60. Free cash flow from the industrial segments was forecast at $2 billion to $4 billion.

In March the company reaffirmed the full-year outlook “with additional commentary on the expected impact of COVID-19.” For the first quarter of 2020, GE said it expected a negative impact on GE Industrial free cash flow of approximately $300 million to $500 million, as well as a negative impact on operating profit of approximately $200 million to $300 million related to COVID-19. GE also said it expected first-quarter EPS to be approximately $0.10 and did not estimate the COVID-19 for the remainder of the year.

Now the company expects first-quarter adjusted EPS to fall “materially below” the March estimate. GE also expects Industrial free cash flow to be near the prior guidance of about negative $2 billion. Total company adjusted EPS deteriorated to a greater extent than Industrial free cash flow primarily due to noncash and timing items in Aviation, Renewable Energy and GE Capital.

The Aviation segment announced on March 23 that it would cut 10% of its U.S. workforce and take other actions planned to save $500 million to $1 billion this year.

CEO Lawrence Culp commented:

We are taking swift actions across the company to position GE to come out stronger on the other side of the COVID-19 crisis. With net proceeds of about $20 billion from the BioPharma transaction now in hand, we have more flexibility to de-risk and further strengthen our balance sheet. We are committed to bringing down our leverage over time as we navigate this period of uncertainty and position ourselves for the future.

GE said it would report first-quarter results before markets open on April 29 and that it would “share additional details” then.

General Electric stock traded up nearly 3% early Thursday, at $7.54 in a 52-week range of $5.90 to $13.26. Its consensus 12-month price target is $9.78.