Industrials

Why GE Shares Soared After So-So Earnings

General Electric Co. (NYSE: GE) reported fourth-quarter and full-year results before markets opened Tuesday morning. The conglomerate reported adjusted earnings per share (EPS) of $0.08 on revenues of $21.9 billion. In the same period a year ago, GE reported adjusted EPS of $0.21 on revenues of $26.2 billion. Fourth-quarter results also compare to the consensus estimates for EPS of $0.09 on revenues of $21.8 billion.

For the 2020 fiscal year, the industrial giant reported EPS of $0.01 and revenue of $79.6 billion compared to estimates of $0.05 in EPS and revenue of $79.5 billion. In 2019, GE reported EPS of $0.65 and sales of $95.2 billion.

While the results seem middling at best, GE blew past its quarterly free cash flow estimate of $2.5 billion in its Industrial division, posting free cash flow of $4.4 billion. Industrial free cash flow for the year totaled $600 million, jumping ahead of the company’s estimate to become free cash flow positive in 2021. The sharp increase in free cash flow reflects the “results of better operations as well as strong and improving orders in Power and Renewable Energy.”

In its outlook for the new fiscal year, GE said it expects Industrial revenues to rise in the low-single-digit range and the division’s profit margin to expand organically by more than 2.5%. Adjusted EPS are forecast in a range of $0.15 to $0.25 and Industrial free cash flow for the year is expected to range between $2.5 billion and $4.5 billion.

Analysts had forecast first-quarter EPS at $0.04 on revenue of $18.3 billion. For the full year, estimates called for EPS of $0.38 and revenue of $81.2 billion.

The company’s outlook also reflects the sale of its BioPharma business and a reduction in revenue due to the continued sale of GE’s stake in Baker Hughes. In the first quarter of 2020, BioPharma generated nearly $300 million in cash and $400 million in profit, and GE received more than $250 million in Baker Hughes dividends in 2020. The outlook further includes flat revenues in the Aviation segment, improved operational performance in the Power and Renewable Energy segments, and continued good performance from the Healthcare segment.

GE reported that new orders in the Power segment rose by 26% year over year in the quarter to $5.6 billion and new orders in the Renewable Energy segment rose by 34% to $6.3 billion. New orders for the Aviation segment fell by 41% to $6.3 billion, while new orders in Healthcare dropped by 15% to $5 billion.

Investors chose to focus on GE’s free cash flow in premarket trading Tuesday. Shares jumped by more than 9% to trade at $12.00, after closing Monday at $10.99. The stock’s 52-week range is $5.48 to $13.26, and the consensus price target on the stock is $11.75. GE pays an annual dividend of $0.04 (yield of 0.36%).

While it may be a bit early to expect GE to boost its dividend, that was certainly in the back of investors’ minds this morning, and that’s what was pushing the share price higher.