Financial Performance

Big Drop in Power Profit Tempers GE’s Q1 Beat

"Until you get power fixed, and they're nowhere close to getting that fixed, the stock only goes so far," one analyst says.
Matthew HellerApril 23, 2018

General Electric reported better-than-expected quarterly earnings and reaffirmed its full-year guidance but analysts remained skeptical about its turnaround strategy amid a continuing slump in its power business.

GE’s earnings beat might have seemed a cause for optimism after some dire recent quarters and rising concerns over its cash position.

For the second-quarter, the conglomerate’s earnings per share rose 14% to 16 cents as revenue climbed 7% to $28.66 billion with growth in aviation, oil-and-gas and healthcare offsetting declines in power, transportation, lighting and renewable energy.

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Analysts had expected earnings of 11 cents per share on revenue of $27.88 billion and, on news of the results, GE shares rose nearly 4% to $14.54 in trading Friday. The stock has declined more than 50% over the past 12 months.

“The first quarter is a step forward in executing on our 2018 plan and we are seeing signs of progress in our performance,” CEO John Flannery said in a news release, industrial earnings, free cash flow, and margins all improved year over year and industrial structural costs declined by $805 million.

“There is no change to our framework for 2018,” Flannery said as GE reiterated full-year guidance of earnings per share between $1 and $1.07 and adjusted industrial cash flow of $6 billion to $7 billion.

GE’s cash flow had become such a concern that in November 2017, it slashed its quarterly dividend by 50%.

But several analysts took little comfort from the first-quarter report. “When you start digging into the details, and you look at what they’re saying is the future of the business, I kind of scratch my head as to how [the company] today is maintaining guidance,” Stephen Tusa of JPMorgan told CNBC.

The beleaguered power division continued to struggle, with profit down 38% on a 9% drop in sales; orders dropped 29%.

“The power business is supposed to be a major driver,” said analyst Brian Langenberg of Langenberg & Co. “Until you get power fixed, and they’re nowhere close to getting that fixed, the stock only goes so far.”

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