Newsflash to the ravenous bulls stampeding to own General Electric (GE) shares: The industrial giant remains a hot mess. Shedding that status will take years of operational overhauling, a buy in by GE executive lifers into new CEO Larry Culp’s plan and extreme patience from a disenchanted investor base.
So, it’s bizarre to see GE as one of the best-performing stocks year-to-date, up a cool 20%. Shares look poised to extend those gains Thursday despite a whopping 5 cents a share fourth quarter earnings miss and pressure points littered throughout the company’s financial statements.
Maybe the polar vortex conditions gripping the country have frozen the thought processes of said GE bulls. Or, they are hopeful Culp will sell off businesses and alter the company’s ingrained culture of excess quicker than imagined.
Again, weird stuff here folks.
Yahoo Finance by the numbers: GE delivered adjusted fourth quarter earnings of 17 cents a share, below analyst forecasts for 22 cents a share. Adjusted earnings fell 60% from the prior year. Sales of $33.3 billion came in relatively in line with estimates. GE’s backlog stood at $391 billion, up 5%.
The good: GE shares popped 7% in pre-trading Thursday in response to the earnings press release. A couple things investors may be zeroing in on: (1) Company called out a host of new leaders for key businesses, signaling Culp is moving fast to reverse GE’s fortunes; (2) Culp reiterated a focus on paying down GE’s sizable debt of more than $110 billion; (3) Profit margins up in GE’s health care, aviation and oil and gas businesses.
The (very) ugly: What many investors may be overlooking (still) is how deep GE’s problems run after years of mismanagement by former CEO Jeff Immelt.
That’s evidenced in another disturbing quarter in GE’s power business, where orders and sales tanked 19% and 25%, respectively. The business lost $808 million in 2018 on $27.5 billion in sales. Meanwhile, GE’s industrial free cash flow — a key metric watched by Wall Street to assess GE’s financial health — fell $1.9 billion in the fourth quarter to $4.9 billion. For the year, GE’s industrial free cash flow dropped 21% to $4.5 billion.
To top it off, GE didn’t provide financial guidance for 2019.
The bottom line: Some minor wins for Culp to end the year. All attention now shifts to further asset sales and the expected spin-off of the GE health care unit sometime this year.
In the meantime, good luck reading that GE 10-Q report, bulls.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi
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