General Electric Company (GE) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen, and welcome to the General Electric First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. My name is John, and I’ll be your conference coordinator today. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today’s conference, Steve Winoker, Vice President of Investor Relations. Please proceed. Steve Winoker: Thanks, John. Good morning, all, and apologies for the delay due to technical reasons. We had to switch to a backup line. It was choppy for a lot of investors, and we wanted to make sure everyone could hear. Larry Culp: Steve, thanks, and good morning, all. Despite continued challenges in aviation and a still difficult comparison to last year, the first quarter marked a solid start to 2021. I’m confident this sets us up well to deliver on our ‘21 commitments, and profitable growth for the long term. Looking at the first quarter numbers on slide 2. Orders were down 8% organically, primarily driven by Aviation Services and Power Equipment. It was partially offset by continued strength in Healthcare and Renewables as well as growth in Power Services. We’re seeing better performance in our shorter-cycle service businesses. Ex-Aviation, service orders were up 6% organically in the quarter. Our backlog stands at $833 billion and remains a strength with approximately 80% geared towards services, where we have higher margins. Industrial revenue was down 10% organically. Services continued to be a main focus as they were down 14%. While services may fluctuate quarter-to-quarter, especially as we’ve seen during the pandemic, we still expect growth in services this year. Ex-Aviation, Industrial revenue was up 1% organically. Adjusted Industrial margin was 5.1%, up 110 basis points organically. Notably, we saw organic expansion year-over-year, with three of our four businesses improving as our cost actions 2020 continue to take hold. Adjusted EPS was $0.03, with the majority of businesses improving, offsetting Aviation. Carolina will provide more color shortly. Industrial free cash flow was a negative $845 million. Encouragingly, this was up $1.7 billion ex-BioPharma, driven by better earnings and working capital. In all, we’re seeing continued progress, especially on margins and cash flow, and we believe these improvements are sustainable. As we look to the second quarter, we expect Industrial free cash flow growth of similar magnitude to what we saw this quarter. And despite ongoing volatility, as the world fights through the pandemic, the guidance we provided a month ago remains unchanged. Carolina Dybeck Happe: Thanks, Larry. As you mentioned, our decentralization effort continues. And our finance is playing a critical role. We’re developing and supporting a more granular operating view of our nearly 30 P&Ls and we’re building lean skills to ensure the processes we’re setting up are truly lean and automated. We’re also deepening our focus on cash and strengthening our operational muscles. We’re especially seeing this with billings and collections. And we’re really driving services growth, a key component to unlocking improved profitability. For example, as we execute contracts, we’re more focused on cost productivity and standard work. I’m confident this improved discipline will translate into improved results. Turning to slide 4. Before we dive into the results, two items. First, with the announcement of AerCap and GECAS combination, GECAS has moved to discontinued operations. As a result, we booked a day one loss on sale on our financials have been recast to reflect this transfer, with depreciations ceasing on the portfolio. Going forward, any changes to earnings associated with GECAS in discops will primarily be driven by the AerCap stock price. Second, we’re planning to transition our quarterly backlog disclosures to our remaining performance obligation basis, or RPO, starting in the second quarter. This change will simplify and streamline our reporting, further aligning our key metrics to those commonly used across our sectors and reducing unnecessary extra work. Now, let me provide some color on the quarter on an organic basis. Looking at the top line. Recall that our businesses only partially felt the impact of the pandemic in the first quarter of ‘20. Aviation continues to be challenged, managing through market volatility, which has weighed on our overall performance. Industrial revenue was down 10% this quarter, largely driven by services. However, ex-Aviation revenue was up 1%. We’re focusing on improved services growth across the portfolio. Healthcare equipment and services continue to be a strength. We saw increased demand as global procedure volumes recovered to pre-pandemic levels. Larry Culp: Carolina, thanks. Let’s go to slide 9. In summary, this quarter was a solid start to 2021. Thanks to our team, we’re making measurable and sustainable progress, and we’re set up well to deliver on our 2021 commitments that we shared with you in March. Since joining GE, one of my top priorities has been instilling greater focus throughout the organization. The GECAS transaction announced last month marks an important step forward in making GE a more focused, simpler and stronger industrial company, we’re even better positioned to serve the needs of our customers and the world with leading technologies and strong service capabilities across our installed base. As we are building a world that works, we’re also creating a more sustainable future, leading in the energy transition, driving more integrated and personalized healthcare and enabling smarter and more efficient flight. I hope the business examples we’ve shared today helped convey the real operational and cultural changes underway at GE. There are many steps, big and small, happening across our Company right now that make me excited about the future. We remain focused on growth, profit and cash generation, and I’m confident in our ability to drive value for the long term. Steve, with that, let’s go to questions. Steve Winoker: Thanks, Larry. And before open the line, I’d ask everyone in the queue to consider your fellow analysts again, and ask just one question so we can get to as many people as possible. John, can you please open the line? Operator: Yes. And our first question is from Markus Mittermaier from UBS. Markus Mittermaier: Good morning. Maybe I start with the bigger picture question here, Larry. So, you talked more and more about playing offense and playing for the long term here. If I bring this back to free cash flow, I know that you -- you kind of guide to 2023 at high single-digit free cash flow margins, but you removed a lot of headwinds. Carolina mentioned that the pension headwind is gone potentially now to the end of the decade. The factoring headwind, I think, even if you look at the near-term here, the 4 to 5 guide that you all reflected, I think, the near-term impact is probably $800 million less. So, de facto, I think you kind of implicitly increased your cash flow guide today, unless I’m misinterpreting that. But, if I take it more to the long term, right, and I look at sort of these removed headwinds, and peers in a lot of your business being significantly above that high-single-digit free cash flow margin, how do you think about the portfolio and that target in the long term? Larry Culp: Markus, a couple of comments there. Let me just level set. I think, what we’re trying to do today is reiterate that what we said, what, a month ago or so, at the GECAS announcement, with respect to our outlook for this year, in terms of free cash potential, the 2.5 to 4.5, that’s intact, right? So, no intention to change that. As Carolina highlighted, we did have $800 million of factoring discontinuation pressure in the first quarter that we’re not adjusting for, but we do want to flag it for you because it’s akin to what we will adjust for more formally the rest of the year now that we have formally discontinued the factoring program. But, I think that as you ask about the longer term, there’s no question that we feel confident today about our potential to deliver on that high-single-digit free cash flow margin in ‘23 or hopefully shortly thereafter, right? And we’re really talking about, you take the midpoint of that, call it 8% on, let’s say, the ‘19 revenue base, somewhere in the $85 billion to $90 billion range, that gets us to a $7 billion free cash number. I think, given the way we are running the businesses better today, at least compared to what I saw when I walked in 2.5 years ago, the opportunities I think we have clearly framed in front of us around the energy transition, around precision health around the future of flight. And as you highlight, as Carolina noted, a number of headwinds will dissipate over time, be it some of the restructuring and power, be it pension. I mean what terrific news that is for us, in addition to the interest step down and the like. So, there’s a lot of things that we’re working on, that we’re encouraged by. There are a number of things that are going to dissipate over time. And you put all that together, well, we’ve got plenty of work to do. So, there’s no declaration of victory here. I think, we’re just trying to underscore our continued confidence that we can deliver on those numbers over time. Clearly, we need Aviation to come back. I think we’re encouraged by a number of the signs there. The U.S., clearly coming back. China, above where they were a year ago, let alone ‘19, at this point. So, that’s encouraging. But certainly, other parts of the world, as you well know, are still fighting this horrible pandemic. That creates a little bit of the volatility that we referred to. But all in, we continue to believe the Aviation recovery is more a matter of when, not if. And again, with that 37,000 strong narrow-body fleet out there, the youngest in the industry, we think we’re well positioned to serve and to deliver results for our investors as that occurs. Operator: Our next question is from Julian Mitchell from Barclays. Julian Mitchell: Just wanted to try and clarify that Q2 Industrial free cash flow comment. So, is the point that when you’re talking about the year-on-year improvement, we should expect of that, I suppose, $2.1 billion base, we should be thinking about a sort of $1.7 billion increase ex-BioPharma? I just wanted to make sure which sort of comparison point we were using. And also, maybe allied to that, any comments around how satisfied you are with the progress on Aviation profitability? You already hit a low-double-digit margin in Q1, and that was the guide for the year. Carolina Dybeck Happe: Okay. So, let me start with the question on the second quarter free cash flow. So, what I mentioned was that we saw the improvement year-over-year, to your point there, of 1.7, excluding BioPharma of free cash flow, and we do expect to see a similar improvement in the second quarter. So, that’s the right way to look at it. Larry Culp: Julian, good morning. With respect to Aviation, you’re right. The 12.8% op margin print in the quarter is good, all things considered, but organically down 200 basis points from where we were a year ago. I think the top line, a little softer than we had anticipated, primarily a function of services getting off to a slightly slower start. And frankly, we continue to be challenged. I think we mentioned this in our prepared remarks, on the military side of the house, just in terms of deliveries. So, we have some past due backlog there that we need to clear, which will be helpful as well. So, as we go through the year, I think you’ll see the cost efforts from last year play out. Clearly, the comps get easier. And as we get a better mix of business, with services coming back, we clear those issues in military -- in the military side of the business, I think you should continue to see us improve the margins from here. But again, we’re -- we really need that overall market recovery to play out as we believe it will largely in the second half -- beginning of the second half. Operator: Our next question is from Steve Tusa from JP Morgan. Steve Tusa: So, just a follow-up on Julian’s question. Can you just give us the base of what the factoring headwind actually was last year in the first quarter and the second quarter on an absolute basis? And then, for the year, so are we -- is the $800 million you did in the first quarter plus the 3.5 to 4 in the second, is that how you get to the 4 to 5, or is a part of the 4 to 5 still to come after second quarter? It’s just a bit confusing. I think, an 8-K with all this would be helpful. But just if you could be specific about the first quarter impact, absolute impact in ‘20, and the second quarter absolute impact in ‘20 that we can kind of figure out what the basis is. Carolina Dybeck Happe: So, maybe let us go back to outlook. So the outlook, we said that we would basically discontinue the majority of our factoring programs, right? And we talked about that the impact of that would be $4 billion to $5 billion on our cash flow, right? So what you see is the $800 million of reduction that we have in the first quarter. That’s still in our numbers, because it’s before we technically discontinued, right? So, you have that $800 million. And then we expect 2Q through 4Q to be $3.5 billion to $4 billion, the majority of that in the second quarter. So, if you take that together, you get 4.3 to 4.8 for the full year, and that’s then in line with the 4 to 5 that we shared at outlook. Steve Tusa: And what is the year-over-year impact of these -- because we’re talking about absolute free cash flow impact versus year-over-year impact. Sometimes, I don’t know, people talk about the impact being year-over-year versus absolute. What is kind of the year-over-year impact? Carolina Dybeck Happe: Yes, exactly. And that’s also why when we’re talking about it, we talked about the impact in 2021, but that’s also why we’re helping you to rebaseline 2020, reduce sort of from the factoring noise. And if you do that, we talked at outlook about 2020, starting with $600 million. You rebase that for, we talked about the COVID and we talked about BioPharma to zero. If you then take out the equivalent, you get a positive free cash flow of $2.4 billion for 2020. And your question specifically on the first quarter, in the first quarter in 2021, you obviously have the headwind of $800 million that you saw in our numbers here, that you then mentally adjust for. And then the equivalent of last year’s reduction of those programs is about $1 billion, right? So, if you do the comparison there, those are the numbers for the first quarter. Operator: Our next question is from Andrew Obin from Bank of America. Andrew Obin: Yes. And just not to talk too much about factoring, but $1.7 billion improvement you expect in Industrial free cash flow in the second quarter. So, just can you walk us through how much of it is factoring drag going away? And how much of the year-over-year improvement is earnings-driven versus other working capital improvement? And if you could just give us directionally color by segment as to what drives the year-over-year improvement. That would be great as well. Carolina Dybeck Happe: Hi Andrew. So, if we start with the improvement for second quarter, what we are saying is that we expect the improvement to be roughly in line to the improvement that you saw in the first quarter. And that’s on a reported basis, right? When it comes to the composition of that, we expect a healthy part of that to be profit improvement, but also working capital improvement. Operator: Our next question is from Jeffrey Sprague from Vertical Research Partners. Jeffrey Sprague: Yes. Let me just kind of join the free cash flow question party here. I guess, my question would be, with the type of visibility that you have on Q2 at this point, the year range actually feels kind of wide now, right, certainly looking about -- looking at kind of historical patterns. Maybe just a little color on what the big variances are in the back half, right? I know you’re going to have 787 ADAs and progress payments moving around, like what are the really big kind of swing factors or cushion items that maybe define the lower end of that range for the year? Larry Culp: Yes. Let me take that at the outset. I’m not sure I would buy into your premise that we’ve got the visibility that you’re suggesting that we do. I think, the range that we have today in line, obviously, with the range that we’ve shared since early in the year, captures what we know and what we don’t know. Clearly, we’re waiting for Aviation to begin to snap back. That is an important swing factor for us. And I think we’ve been consistent talking about that. I don’t think there’s much of a historic whole precedent in that business given the way the pandemic is ravaging various parts of the world and, in turn, both leisure and business travel. Clearly, we have a new administration that’s doing a lot of good things, medium to long term here to help, I think, fuel our Renewables business and the growth there. But, the order book, as it often is, is backloaded in Onshore and Offshore. And we -- as our customers do need to have, I think, better visibility with respect to number of funding programs, tax policy changes and regulatory approvals, that will have real impact on orders and, in turn, down payments in that business. So, I don’t want to lay out a long list, but there are a number of moving pieces here. And given the nature of our business, as you well know, a number of orders are often large and they carry with them significant cash impacts when they happen and negative effects when they don’t. So, I think what we’re going to do going forward is what we’ve done here in the last several years, tell you what we know, tell you what we don’t. I think we’re mindful that the factoring dynamic creates some noise here. But again, as we’ve said a couple of times, no change to the effect, 4 to 5, as we discontinue the factoring programs. And operationally, we feel good about the 2.5 to 4.5. If we can get to the high end of that range, great; if we can do better, we will. But it’s a long-term game here, and that’s the way we’re going to play it out. Operator: Our next question is from Nigel Coe from Wolfe Research. Nigel, your line is open. Our next question is from Deane Dray from RBC Capital Markets. Deane Dray: There’s a lot of angst right now across the industrials about cost inflation, supply chain disruptions. I did see in the appendix, on the military aviation, cited some supply chain pressures. But just broadly, where are the pinch points? Is it -- would it represent a particular headwind for the second quarter or for the balance of the year? And any update there would be helpful. Larry Culp: Sure. Deane, you’re touching on a couple of different things. Let me try to take them in order. From a price cost perspective, a number of moving pieces. We’re clearly seeing some price pressure, not unlike what you’ve heard about elsewhere, resins, certain metals. But I think we’ve also been able to mitigate that in the first quarter to effectively a wash number of things that we do normal course from a cost management perspective, let alone going after price where we can. I think, where we’re seeing supply issues particularly are in and around where we’re seeing a little bit better growth, interestingly enough, not surprisingly, Healthcare probably being number one, Renewables being the other, again, chips, resins and the like. I think right now, it’s more isolated, call it nuisance would be maybe an understatement, but I think we’re working through that and presumably have that captured in the guide that we’re reiterating today. With respect to military, that’s a little bit of a different challenge, right? That’s not a price cost play. That’s not a supply chain disruption issue given the snapback. There are a number of things that we need to do a better job of inside of our own facilities. We need help from our supply base there so that we’ve got a smoother, more consistent flow into and out of -- into through and out of the manufacturing processes. So, we’re working on that. That’s not going to be something that we declare victory on here in the second quarter. But rest assured, we’re spending a lot of time working those issues with our customers in mind, first and foremost. So, hopefully, that gives you a little bit of a color for what’s happening operationally. These are the challenges when you get economic recovery, and we’re glad to see these challenges because it suggests that better times are on the way. Operator: Our next question is from Nigel Coe from Wolfe Research. Nigel Coe: So, I want to ask a question on insurance. Obviously, GECAS goes a long way to sort of making the balance sheet a lot simpler. Insurance seems to be the next logical step. And I’m wondering if some of the improvements we’re seeing in claims experience, obviously more equity buffer there, rising rates, whether that means that insurance is even close to being on the table at this point? Larry Culp: Well, Nigel, I would say that a number of those trends clearly are encouraging and helpful here in the very near term. I’m not sure that we’re quite ready today to suggest that all of that means that we could do something along the strategic dimension with insurance. I think, we will continue to manage premium. I think we’ll manage claims, let alone the investment portfolio, as thoughtfully as we can as long as that run-off liability is in our hands. But I do think that given that the curves have more or less played out as we remodeled them a few years back, clearly, you’ve got the COVID effects, GE is in a very different place today. I’m optimistic that we’ll continue to explore strategic options in and around insurance, and we’ll see what happens. I don’t want anyone to bank on that as a dead cert. But by the same token, I think what you’ve heard us say for some time is we’re very keen to focus on our core four Industrial businesses. Insurance is not inside that perimeter. So, if and when we have an opportunity to do something smart, creative and strategic around insurance, rest assured, we’ll give that our full attention. Operator: And our next question is from Josh Pokrzywinski from Morgan Stanley. Josh Pokrzywinski: Just Larry, going back to a comment I think you made on outlook about shop visits in Aviation and maybe not using that as a single point metric, that scope is also an important factor. Just given that your comment earlier that Aviation is kind of an important swing factor in the second half, how are you seeing that scope or kind of dollar per shop visit evolve? Is that trending within your expectations? And any trend line there that we can point to that say that things are getting sort of better or worse as the world unfreezes? Larry Culp: Well, I think, the expectation, Josh, is that things will get better in terms of not only, if you will, volume of shop visits, but scope or the value of a shop visit. That said, there are different types of shop visits, right, some of which we perform, some of which we don’t. I think, we’ve got better visibility, clearly, when we’re doing all the work. I think, that is playing out as we would have anticipated. You well know a number of cross currents and pressures there in the short term, is airlines, battle of COVID. We’ve got less visibility on the channel side of things. And I think we clearly see signs that over the last several quarters, a number of our partners have brought inventory levels down. That doesn’t necessarily mean a scope reduction on the part of the shop visit being performed, but it does have a knock-on effect relative to the value for us in the very near term. But, like any distribution or third-party-related business I’ve ever seen, you see those behaviors in the downturn and then you get a lift off that base. And that is part of what I think we will see. That’s part of what we are assuming we will see as we see the snapback in shop visits going forward. But that all needs to play out. Again, a number of encouraging signs in certain markets, the U.S. and China, first amongst them. But clearly, some signs in places like India, like the rest of Asia Pac, parts of Europe, that are of concern and need to stabilize before they improve. Operator: Our next question comes from Andy Kaplowitz from Citigroup. Andy Kaplowitz: Larry, could you give us a little more color into how you’re thinking about execution in Healthcare? I know you said in your outlook call that you’re only going to increase Healthcare margin for the year by 25 to 75 basis points. But, as you said, it’s up 270 basis points organically. So, did you, for instance, not increase R&D yet as much as you thought? Are you seeing just better mix? And I know it’s early, maybe you’re a bit worried about supply chain, but could that margin forecast that you have in Healthcare end up being quite conservative? Larry Culp: Andy, I would say that, credit to the team, we have really three quarters here running where despite a choppy, somewhat unpredictable top line given the pandemic, they’ve done a heck of a job on margins and cash, right? And I just think that is a function of a lot of the lean work we’ve talked about. That’s probably our operating segment where we have pushed decentralization the furthest to date. And I do think we’re seeing some early results there. There’s no question that they’ve gotten off to a good start, right? Orders, up 5%. Let’s remember though, it’s a bit of a Dickens’ dynamic, right, two cities, pandemic-related products, well off where we were a year ago. But the core Imaging and Ultrasound franchises, from an orders perspective, are up over 20% year-on-year in the first quarter. That gives you a little bit of a sense of the play there. And that’s really where precision health happens. With due respect, it’s not ventilators and patient monitors. They have a role to play, but it really is in and around CT, Ultrasound and the core Imaging products. I think, as we go forward, while we’re encouraged by the 270 bps, if we are getting a market snapback more than we would have anticipated and if we see that being sustainable, in addition to the operating improvements we’re going to make, I think what you’ll see us do Andy is, frankly, try to temper the margin expansion this year and look to put more money back into the business. In no way does that suggest we have not been funding those opportunities that we have wanted to, but you have to follow really the history of the last couple of years, right? We were prepping for an IPO. We pulled that off. Sold BioPharma, that’s a distraction. Getting back to basics. Head long into a pandemic. We’re really, I think, getting into calmer water in Healthcare, which gives us an opportunity, now that I think we’re proving we can deliver on margins and cash, to drive growth, put more money into it, but make sure those are good investments, be it in sales force additions, be it in digital, be it in new products, right? So, we’re not going to call that today, but don’t be surprised if we continue to see good top and bottom line performance, that we call off some of the outsized margin improvements, so that we’re putting that back into the business and have a good ‘21 but also a good ‘22, a good ‘23 in a business that I think more people are going to appreciate as a real value driver for GE going forward. Steve Winoker: John, we’re late at this point. Why don’t we take one last question and then we’ll call it and follow up with everybody else offline. Operator: And we have it from Scott Davis from Melius Research. Scott Davis: You guys talk a lot about lean; you talk about the turnaround, talk a little bit less about price. How -- and I guess, it’s a different number of business, I’m sure, but how are you going about changing kind of the historic bidding process. And how big of a importance - I mean, I know you did mention price a few questions ago, but how important is price to -- particularly net price to the turnaround and things like Renewables? Larry Culp: Well, I -- in Renewables, Scott, if we just focus there, when we talk about selectivity, that really is about price and margins, but also about terms and conditions, which I think of as really, if you will, risk that isn’t necessarily modeled but can come back and course through and wreck the P&L, if we’re not careful. So, a good bit of what you see happening in Onshore Wind, and I think increasingly in Grid, is a little less of an aggressive pursuit of the top line with more of a balanced approach to go after the business where we’re well positioned, where we can serve and make a little bit of money, hopefully, a little bit more money over time, but also have a less -- have a better risk profile, right, to make sure that we’re in the geographies, we’re in the applications where we have higher confidence. So, it’s not priced the way it is in Healthcare, obviously. But, if you go through our deal review process, I think you would see that selectivity in those two areas in Renewables, and it’s very much the same process we are driving across the organization. Now, there are plenty of things that we’ll do in the short-term, price where we can, surcharges. A number of our long-term contracts across the company have inflation-based escalators in them, which helps us in environments like the one we may see play out here in the next couple of years. But, we’re really just, again, trying to pursue the quality business across the portfolio where we can serve the customer well and do that in a way that drives margins and cash for our investors. Steve Winoker: John, I think, we’re going to have to call it at that point. To everybody, I want to thank you for your patience at the beginning of the call. My team and I stand ready to help clarify your questions. I know there’s some complexity that people are trying to work through on the factoring, which we’ve tried to clarify, but we’re available to help really get it down and fine-tune it for everybody. Okay? So, I look forward to speaking to you. And have a great day. Operator: Thank you. Ladies and gentlemen, that concludes today’s call. Thank you for participating. And you may now disconnect.
General Electric's Q1 Results Exceed Expectations with Strong Performance
General Electric's Impressive First-Quarter Results Surpass Expectations
General Electric (GE:NYSE) recently made headlines with its first-quarter results, which not only exceeded analysts' expectations but also showcased the company's robust performance across its diverse segments. The adjusted revenues of $15.2 billion and earnings of $0.82 per share outpaced the consensus estimates of $15.1 billion and $0.65, respectively. This positive news propelled GE's stock to an 8% increase in just one day, contributing to a remarkable 60% rise this year. From the beginning of 2021, GE's stock has soared from $55 to approximately $165, marking a 200% gain, significantly outperforming the S&P 500's 35% increase during the same timeframe. Despite this impressive growth, the stock is deemed to be fully valued at its current level, with a recent trading session seeing the stock price adjust to $159.7, a slight decrease of 1.31%.
The journey of GE's stock has been a rollercoaster, with a 10% gain in 2021, an 11% drop in 2022, and an astonishing rebound of 96% in 2023. This volatility stands in stark contrast to the more consistent returns of the S&P 500 and other major players in the industrial sector. Currently, GE's valuation is pegged at $161 per share, which is in close proximity to its recent trading price of $163, indicating that the market has accurately priced in the company's current and anticipated performance.
A significant driver behind GE's revenue growth is its Aerospace segment, which experienced a 16% increase. Additionally, the Power and Renewable Energy segments also contributed to the company's success, with growth rates of 8% and 6%, respectively. GE has been undergoing a strategic restructuring, which included spinning off its healthcare business last year and recently its renewable energy and power business. These moves, combined with an 11% year-over-year revenue increase and a 300 basis point improvement in adjusted profit margins to 10.5%, have significantly enhanced its earnings per share to $0.82, tripling the figure from the previous year.
Looking into the future, GE is optimistic about its Aerospace segment, projecting low double-digit sales growth for 2024. The company also forecasts adjusted earnings per share to range between $3.80 and $4.05. Despite these positive projections and improved profit margins, the consensus among analysts suggests that the current stock price already reflects these advancements. This implies that potential investors might find better opportunities to invest in GE at a more attractive price point, considering the stock's recent performance and the broader market's valuation of the company at around $174.81 billion in market capitalization.
GE Aerospace's Promising Outlook Post-General Electric Split
GE Aerospace Shines Post-Split from General Electric
GE Aerospace, a division that has recently become independent from General Electric (GE:NYSE) following a strategic split, is stepping into the spotlight with its first quarterly results as a standalone entity. This move comes on the heels of a remarkable nearly 40% surge in GE's stock price leading up to the separation, with the trend continuing upward. The focus is now on GE Aerospace's commercial aftermarket sales, a segment that has emerged as a pivotal component of its business model. This anticipation is backed by FactSet analysts' projections, expecting GE Aerospace to unveil adjusted earnings of 65 cents per share on revenue of $15.25 billion, marking a significant improvement from the previous year's figures.
The optimism surrounding GE Aerospace is further bolstered by TD Cowen's upgrade of GE stock to a buy rating from hold, driven by the promising outlook of the company's commercial aftermarket prospects. This positive sentiment is partly due to the production challenges faced by Boeing, which are anticipated to indirectly benefit GE Aerospace. Given that over half of GE Aerospace's sales and three-quarters of its profits stem from the commercial aerospace aftermarket, the sector's dynamics play a crucial role in shaping the company's financial health. TD Cowen's adjustment of GE's price target to $180 from $175 reflects confidence in the near-term advantages arising from Boeing 737 Max's production hurdles.
Looking ahead, GE Aerospace has laid out ambitious goals, aiming for low double-digit revenue growth in 2024, with an operating profit target of up to $6.25 billion and more than $5 billion in free cash flow. The trajectory extends into 2025 and beyond, with the company setting sights on maintaining low double-digit sales growth and achieving an operating profit of approximately $7.3 billion by 2025, and a lofty $10 billion by 2028. These targets underscore GE Aerospace's commitment to not only expanding its market presence but also enhancing shareholder value through dividends and share buybacks, planning to return about 70%-75% of its cash to shareholders.
The financial landscape of GE, as detailed by its market valuation metrics, paints a picture of a company with a balanced valuation and a solid financial structure. With a price-to-earnings (P/E) ratio of approximately 14.75 and a price-to-sales (P/S) ratio of about 2.42, GE presents itself as an attractive investment option for those seeking reasonable earnings potential. The enterprise value (EV) to sales ratio of roughly 2.50 further indicates a moderate market valuation of the company's sales relative to its enterprise value. However, the EV to operating cash flow ratio of approximately 32.86 suggests that the market may be pricing GE's operating cash flow at a premium, possibly in anticipation of future growth or improvements in operational efficiency.
In conclusion, GE Aerospace's emergence as a standalone entity in the aerospace sector, coupled with its ambitious growth targets and the financial health of GE as a whole, presents a compelling narrative for investors. The company's strategic focus on the commercial aftermarket, alongside its robust financial metrics, positions GE Aerospace for potential success in the competitive aerospace industry.
General Electric's Monumental Transformation and New Growth Prospects
General Electric's Monumental Transformation
General Electric (GE:NYSE) has recently undergone a monumental transformation, splitting into three separate entities. This strategic move marks a significant shift from its historical role as a dominant force in the American industrial landscape. The completion of this breakup is not just a new chapter for GE but also a reflection of the evolving business environment where specialization and focus are increasingly valued. This restructuring aims to unlock value and enhance operational efficiency across GE's diverse business units.
Following this significant restructuring, Myles Walton of Wolfe Research has set an ambitious price target for GE at $162, as highlighted by StreetInsider. This new target suggests a potential upside of 18.71% from its current trading price of $136.47. This optimistic outlook is likely influenced by GE's impressive financial performance in its recent quarterly report. The company has demonstrated robust growth, with revenue increasing by 11.97% and gross profit by 13.17%. More striking is the surge in net income by 517.05% and a remarkable jump in operating income by 1144.10%, showcasing GE's ability to significantly improve its profitability post-restructuring.
The financial metrics further reveal a company on the rise, with GE's asset growth reported at 4.07%. The growth in free cash flow by 83.74% and operating cash flow by 72.30% are particularly noteworthy, indicating strong liquidity and operational efficiency. These figures are essential for investors as they suggest GE's enhanced capability to generate cash, invest in growth opportunities, and return value to shareholders. However, it's important to note the slight decline in book value per share by 4.49% and an increase in debt by 10.15%. These figures hint at GE's strategic decisions to invest in its future growth, possibly explaining the increased leverage.
The breakup of GE into three entities, coupled with its recent financial performance, paints a picture of a company that is not only adapting to the changing business landscape but is also poised for future growth. The setting of a new price target by Wolfe Research underscores the confidence in GE's strategic direction and its potential to deliver value to its shareholders. As GE embarks on this new phase, investors and market watchers will be keenly observing how this storied conglomerate navigates its post-breakup landscape, aiming to leverage its core strengths in a more focused and efficient manner.
General Electric Shares Drop on Weak Guidance
General Electric's (NYSE:GE) shares saw a more than 3% decline intra-day today following a Q1 forecast that fell short of analysts' expectations.
In its fourth quarter, GE reported earnings per share (EPS) of $1.03, surpassing the expected $0.89. The company's adjusted revenue reached $18.5 billion, exceeding the consensus of $17.25 billion.
The company's power segment reported $5.79 billion in revenue, a 15% increase from the same quarter last year and higher than the anticipated $4.89 billion. Additionally, renewable energy revenues for the quarter stood at $4.21 billion, marking a 23% year-over-year increase and surpassing the estimated $3.65 billion.
However, despite these strong Q4 figures, GE's shares experienced a downturn due to its weaker-than-expected guidance for the first quarter. The company is projecting EPS to be between $0.60 to $0.65 for Q1, which is below the consensus estimate of $0.70 per share.
General Electric Shares Drop on Weak Guidance
General Electric's (NYSE:GE) shares saw a more than 3% decline intra-day today following a Q1 forecast that fell short of analysts' expectations.
In its fourth quarter, GE reported earnings per share (EPS) of $1.03, surpassing the expected $0.89. The company's adjusted revenue reached $18.5 billion, exceeding the consensus of $17.25 billion.
The company's power segment reported $5.79 billion in revenue, a 15% increase from the same quarter last year and higher than the anticipated $4.89 billion. Additionally, renewable energy revenues for the quarter stood at $4.21 billion, marking a 23% year-over-year increase and surpassing the estimated $3.65 billion.
However, despite these strong Q4 figures, GE's shares experienced a downturn due to its weaker-than-expected guidance for the first quarter. The company is projecting EPS to be between $0.60 to $0.65 for Q1, which is below the consensus estimate of $0.70 per share.
General Electric Jumps 6% on Strong Q3 Beat
General Electric (NYSE:GE) shares rose more than 6% intra-day today after outperforming quarterly expectations and updating its annual guidance. Q3 adjusted revenues surged 18% to $16.5 billion, exceeding the predicted $15.42 billion. The adjusted EPS stood at $0.82, surpassing the $0.56 consensus.
GE improved its 2023 forecasts, expecting an adjusted EPS of $2.55-$2.65, up from the earlier $2.10-$2.30 estimate and above the $2.36 consensus. They predict organic revenue growth in the low teens and a free cash flow between $4.7-$5.1 billion, an improvement from the previous $4.1-$4.6 billion estimate.
CEO Culp emphasized GE's readiness to introduce GE Aerospace and GE Vernova as standalone entities by Q2, expressing optimism about the company's future.
General Electric’s Price Target Raised to $125 From $107
Wolfe Research raised the price target for General Electric (NYSE:GE) from $107 to $125, reaffirming its Outperform rating. As a result, shares gained more than 2% intra-day today.
The analysts explained that the fiscal year 2025 provides a more accurate representation of the company's typical earnings power, and this year serves as the basis for their valuation framework.
The analysts stated that they have updated their Commercial OEM (Original Equipment Manufacturer) delivery forecasts and adjusted the EBIT (Earnings Before Interest and Taxes) bridge to account for a slightly heavier adverse mix between OEM and AM outgrowth. However, they noted that the losses from the LEAP program are narrowing.
As a result, the projected EBIT for 2023 remains unchanged at $5.7 billion, which is at the higher end of the guidance range. The estimated EBIT for 2025 has been increased by approximately 3% to $7.8 billion. The analysts expressed expectations that management will slightly exceed the 20% margin target over that timeframe.
