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It has been about a month since the last earnings report for General Electric Company GE. Shares have added about 7.4% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is GE due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
GE Stock Jumps as Q1 Earnings & Revenues Trump Estimates
General Electric started 2018 on a robust note as it reported first-quarter 2018 adjusted earnings of 16 cents per share, which beat the Zacks Consensus Estimate of 11 cents.
The company’s bottom line benefited from strong performance in Aviation and Healthcare businesses. Also, robust cost controls drove profits.
GAAP earnings from continuing operations for the reported quarter came in at 6 cents a share compared with 5 cents in the year-ago quarter.
Total consolidated revenues for the reported quarter rose 7% year over year to $28,660 million and trumped the Zacks Consensus Estimate of $27,884 million. While the Industrial segment revenues improved 9% year over year to $27,395 million, GE Capital revenues declined 19% to $2,173 million. Organic revenues for the Industrial segment fell 4% for the quarter to $23,817 million.
Total orders for the quarter for the Industrial segment increased 10% year over year to $27.4 billion, with significant order improvements from the Renewable Energy segment (up 15%), Aviation unit (up 13%) and Transportation (up 46%). These were partially offset by persistent decline in Power (down 29%).
Revenues by Segments
Revenues from Lighting inched down 1% to $456 million with lower revenues from the legacy lighting businesses, while Oil & Gas revenues were up 74% year over year to $5,385 million due to improved revenue contribution from Baker Hughes. Revenues from the Aviation segment rose 7% to $7,112 million, while Transportation revenues declined 11% year over year to $872 million on lower locomotive volume.
Power segment revenues were down 9% year over year to $7,222 million with lower demand for turbines, while revenues from the Healthcare segment improved 9% to $4,702 million owing to solid volumes. Revenues from the
Renewable Energy segment declined 7% year over year to $1,646 million, thanks to lower Onshore Wind equipment sales. GE Capital segment generated a loss of $1,768 million.
Margins, Balance Sheet and Cash Flow
Driven by stringent cost-cutting and simplification initiatives, GE recorded higher margins in the reported quarter. The company reduced Industrial structural costs by $805 million in the quarter and is on track to exceed its cost reduction target of $2 billion in 2018.
Adjusted Industrial segment operating profit increased 15% year over year to $2,745 million, while margins expanded 60 basis points (bps) year over year. Improvement in profits in Aviation (up 26%), Transportation (up 37%), Renewable Energy (up 10%) and Healthcare (up 11%) was partially offset by a decline in Power (down 38%) and Oil & Gas (down 30%).
GE Power is the largest business segment of the company in terms of corporate revenues. However, the business has been a drag on earnings in the last few quarters as global demand waned with increasing popularity of renewable energy sources, overcapacity, lower utilization and fewer outages. Industry experts opine that the acquisition of Alstom’s assets for $10 billion in 2015 further compounded the problems for General Electric, as it increased operating costs and contracted margins.
Cash used in operating industrial activities for the quarter (excluding deal taxes and pension plan) totaled $1,681 million, up 39% year over year. Cash and marketable securities at year-end 2017 aggregated $69.3 billion compared with $82.7 billion in the year-ago period.
GE reiterated its guidance for 2018. The company continues to project operating earnings in the range of $1.00-$1.07, with momentum in Aviation and Healthcare and persistent challenges in the Power segment. The company expects a gradual improvement in earnings with structural changes, simplification and cost-cutting initiatives.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been four revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 20% due to these changes.
General Electric Company Price and Consensus
General Electric Company Price and Consensus | General Electric Company Quote
At this time, GE has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was also allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, GE has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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