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GE's stock gains after first quarter earnings beat

Javier E. David
·Editor focused on markets and the economy

General Electric’s (GE) stock rose on Tuesday after first quarter earnings beat Wall Street’s expectations, as weakness in its beleaguered power unit was partly offset by strength in oil, gas and aviation.

The troubled industrial conglomerate posted adjusted earnings per share of 14 cents on revenue of $27.3 billion. That compared with expectations of 9 cents per share on revenue of $27.11 billion, according to a consensus forecast from Bloomberg.

On a continuing basis, GE’s profit in Q1 was 11 cents per share— more than tripling from the comparable year ago period, when it earned just 3 cents per share.

Those results were enough to send GE’s stock on a tear in early trading, rallying by more than 10% from Monday’s close before cooling those gains. Recently, the company’s shares traded above $10 per share, up around 4% on the day.

“While GE still has a lot of work to do, we think today's results indicate a positive step in the right direction,” Jim Corridore, equity analyst at CFRA Research said on Tuesday. The firm rates the stock as a buy with a 12-month target of $12.

GE's logo, at the top of their Global Ops Center in Cincinnati  (AP Photo/John Minchillo, File)
The General Electric logo is displayed at the top of their Global Operations Center in the Banks development of downtown Cincinnati.

GE has been struggling to control a deteriorating cash position, largely by cutting costs and reining in debt.

During the first quarter, it reported adjusted negative free cash flows—a metric of intense interest to Wall Street—of around $1.2 billion in the quarter. However, that figure narrowed substantially from negative $1.76 billion a year ago.

The General Electric logo appears above a trading post on the floor of the New York Stock Exchang. (AP Photo/Richard Drew)
The General Electric logo appears above a trading post on the floor of the New York Stock Exchang. (AP Photo/Richard Drew)

The company’s most closely-watched segments include its capital, aviation and health care segments. Yet GE is plagued by the underperformance of its power business, which GE expects to pare by about $400 million this year.

During the first quarter, orders in its power business plunged by 14% year-over-year—as expected—and revenue diving by 22%. However, gains in GE’s aviation, oil and gas and healthcare segments helped counteract the softness in power.

Aviation revenues surged 12% from a year ago, while oil and gas money saw a 4% jump year-over-year. Yet renewable energy revenues contracted by 3% from the first quarter of 2018, underscoring GE’s continued struggles in power generation.

Analysts at UBS recently declared that “the bottom is in sight” for GE Power, rating the stock as a buy with a target of $13.

In March, GE guided lower expectations for 2019’s earnings growth, as the company struggles to rein in debt and reform its beleaguered power business. CEO Larry Culp said that the segment — one of GE’s most closely watched segments —would improve but remain in the red.

In a statement, Culp reiterated March’s guidance for the company, saying that he was “encouraged by the improvements we are making inside GE. This is one quarter in what will be a multi-year transformation, and 2019 remains a reset year for us.”