GE Shares Jumps As General Electric Tops Free Cash Flow Estimates

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Multinational conglomerate General Electric reported earnings results today, almost meeting earnings forecasts while free cash flow topped expectations sending shares up by 6.3%. GE’s earnings fell 62% to 8 cents per share, as compared to the same quarter last year, just one penny less than what analysts expected.

Revenue

For revenue, Wall Street expected a hit of 19% to $21.27 billion while it fell only 16.5% to $21.9 billion. Total orders plummeted 3% to $23.2 billion while organic orders were down 3%. GE Power’s revenues didn’t change much from last year at $5.38 billion.

Aviation Suffers

Aviation revenues tumbled 35% to $5.85 billion due to the pause of Boeing Co’s 737 MAX jets, which uses GE’s engines, and the weak consumer demand for passenger aircraft. The division’s orders slumped 41%, pushing overall profits down by $1.5 billion to $564 million.

Industrial revenue plunged 13% in 2020.

Wall Street Focuses On Free Cash Flow

However, Wall Street is more concerned about GE’s free cash flow (FCF). FCF measures a firm’s ability to repay creditors and monitors the health of the firm. Industrial cash flow climbed to $4.4 billion in the quarter, 12% up compared to the same period last year. The results were almost double as compared to analysts’ and GE’s own predictions of $2.6 billion and $2.5 billion, respectively for the quarter. The full-year cash flow was reported $606 million.

In Q3, FCF declined 21% to $514 million compared to the same period last year. It was still an improvement as compared to the outflow of $4.3 billion in the first half of the year.

Larry Culp’s Efforts

The impressive earnings results show that CEO Larry Culp’s turnaround plan is progressing. Culp took control in 2018 and has been trying to enhance GE’s FCF and reduce debt. However, his plan was hindered by the abrupt hit taken by the aviation division fueled by the pandemic. Aviation stands as the company’s most profitable unit, generating the most cash.

Despite the shock, Culp worked to reduce costs by $2 billion and took other measures to save around $3 billion in cash in 2020. The conglomerate announced last month that it has pre-funded $2.5 billion in minimum pension payments over the next three years and repaid a $1.5 billion loan to GE Capital.

Upbeat Outlook

Analysts predict FCF of $3.03 billion for 2021 while GE expects to see it in the range of $2.5 billion and $4.5 billion. The Boston-based conglomerate announced its expectation of adjusted earnings for 2021 to be between 15 cents and 25 cents per share compared to 1 cent last year. Organic industrial revenue is forecasted to climb in the low single digits.

Aviation Expected To Be Flat

Aviation revenue is estimated to remain flat in 2021 as it substantially relies on the speed of recovery in commercial air traffic and the time of aircraft deliveries. Fortunately, GE’s key customer Boeing Co’s 737 MAX jets have returned which will improve the unit’s performance.

 

GE shares rocketed 10.3% in premarket trading following the earnings release to indicate an opening bell price of $12.12 per share. The climb would extend the stock’s six-month gain to about 80%.

Source The Street Reuters Investor's Business Daily

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