GE (GE) Down 1.6% Since Last Earnings Report: Can It Recover?

About a month has passed since General Electric’s (GE) last earnings report. Shares have lost about 1.6% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is GE due for a breakout? Before we dive into the recent reaction from investors and analysts, let’s take a quick look at the company’s most recent earnings report in order to get a better handle on the important factors influencing the situation.

General Electric Tops Third Quarter Earnings Estimates, Growth in ’21

General Electric reported mixed results for the third quarter of 2021. Its earnings exceeded estimates by 39% and sales missed estimates by 3.6%.

For the reported quarter, the industrial conglomerate’s adjusted earnings came in at 57 cents per share, surpassing the Zacks Consensus Estimate of 41 cents. In addition, the financial result increased by 50% compared to the previous year, which was 38 cents.

Revenue details

For the quarter, General Electric’s consolidated revenues were $18,429 million, reflecting a decline of 0.5% year-over-year. Quarterly sales were hurt by weakness in the Healthcare and Renewable Energy segments, partially offset by gains in Aviation.

The company’s earnings missed the Zacks Consensus Estimate of $19,126 million.

On a segment basis, the company’s industrials revenue declined 1% year-over-year to $17,821 million. Additionally, GE Capital’s revenue was $734 million, down 3.2% year-over-year.

In the industrial segment, organic revenue for the quarter decreased 1% compared to the year-ago quarter to $17,636 million. Industrial orders increased 42% year over year to $22.1 billion. Organically, orders increased by 42%.

The operating results of the Industrial Components segment are discussed below:

Aviation revenue increased 10% year-on-year to $5,398 million and orders increased 69%. Organically, the dynamics of revenues and orders amounted to 10% and 70%, respectively. The segment benefited from a 16.7% year-over-year increase in engine and commercial services revenue, partially offset by a 2.6% revenue decline in the Military Equipment segment and a 1% decline in the Systems and Other segment.

Healthcare revenue for the reported quarter was $4,339 million, down 5% year-over-year. The segment’s orders increased by 21%. Organically, revenues decreased by 6% and orders increased by 19%.

The segment experienced a 6.2% decline in healthcare systems sales, partially offset by a 5.6% increase in pharmaceutical diagnostics revenues.

Revenues from renewable energy sales amounted to $4,208 million, down 7% year over year. Its orders increased by 65% ​​in the reported quarter. Organically, the segment’s sales decreased by 9% year-on-year, while orders increased by 65%.

Onshore Wind segment sales declined 7.8% year-over-year, while Grid Solutions equipment and services revenues declined 18.9%. Hydropower revenues increased 18.8% year-over-year, and offshore wind and hybrid revenues increased 66.1% year-over-year.

Year-on-year revenues of the Power segment remained at USD 4,026 million. Organically, sales decreased by 1% compared to the same quarter last year. The segment’s orders increased year-on-year by 8% (or grew organically by 6%).

Revenues from gas power fell 2.7% to $2,861 million, while revenues from steam power increased 2.7% and revenues from power conversion units, nuclear and others rose 19%.

Margin profile

During the quarter, General Electric’s selling costs decreased 13.5% year-over-year to $9,127 million. This represented 49.5% of the quarter’s revenues compared to 57% in the previous year’s quarter. Selling, general and administrative expenses for the quarter decreased 14.6% to $2,747 million. This represented 14.9% of the quarter’s revenues compared to 17.4% a year earlier.

Research and development expenses were $627 million, up 5.4% year over year. This represented 3.4% of the quarter’s revenues compared to 3.2% a year earlier.

Industrial segment adjusted operating profit was $1,337 million, up 55% year-over-year. Margin for the quarter was 7.5%, up 270 basis points year over year.

According to reports, the Power segment posted an operating profit of $204 million, an improvement of 38% compared to the year-ago quarter. Renewable energy posted a loss of $151 million compared to a loss of $51 million in the third quarter of 2020. Aviation segment profits were $846 million compared to $350 million in the same quarter last year. Healthcare segment profits fell 5% to $704 million.

The GE Capital segment reported a loss of $142 million, compared with a loss of $29 million in the year-ago quarter.

Interest and other finance charges decreased 12.2% year-over-year to $462 million.

Balance sheet and cash flow

At the end of the third quarter of 2021, General Electric had $25 billion in cash and cash equivalents, an 11.1% increase from the $22.5 billion recorded at the end of the previous quarter. Debt was $57.4 billion, down 3% from $59.2 billion at the end of the second quarter.

Non-GAAP free cash flow for GE Industrial was $1,727 million in the third quarter, compared to $514 million in the year-ago quarter.

Efforts are ongoing to reduce exposure to GE Capital’s business. Total asset sales in the first three quarters of 2021 were $11.4 billion.

Perspectives

In 2021, the company anticipates that Industrial’s organic revenue will remain flat year-over-year compared to the low single-digit growth mentioned earlier.

Adjusted organic margin is expected to increase by 350 bps, up from the previously reported 250 bps. Industrial free cash flow is likely to be $3.75-4.75 billion, up from the $3.5-5 billion mentioned earlier.

Adjusted earnings per share for the year are expected to be $1.80-$2.10 per share, up from the $1.20-$2.00 per share mentioned earlier.

How have estimates changed since then?

Investors have witnessed a downward trend in estimate revisions over the last month.

VGM results

Currently, GE boasts a high growth rate of A level, which means the same result in terms of development dynamics. However, the stock is rated C for value, putting it in the middle 20% for this investment strategy.

Overall, the company’s Total VGM Score is A. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, GE carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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