General Electric Company (GE) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen, and welcome to the General Electric Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. My name is Brandon 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: Larry Culp: Steve, thanks and good morning, everyone. Overall, we delivered a strong second quarter and first half performance, and we're encouraged by the early signs of the recovery. Looking at the numbers on Slide 2, recall that the second quarter of 2020 was challenging, as we navigated the full negative effects of the pandemic. While we recognize that many are still facing continued challenges with new COVID spikes and variants, we're seeing our businesses return to growth this quarter. Orders were up 30% organically, with growth across all segments, and services were up 50%. Industrial revenue grew in 3 of our 4 segments. We saw strength in Healthcare and in Services overall. And Healthcare and Renewables in total, as well as in Power Services, revenue was back to levels, similar or better to 2019. Notably, Aviation Commercial Services were up substantially as we're beginning to benefit from the market recovery. Our Adjusted Industrial margin expanded a thousand basis points organically, with year-over-year expansion across all segments and sequential expansion in all segments except Aviation, where we took a non-cash charge largely related to one customer contract.We expect Aviation margins to expand for the rest of '21. Carolina will cover this in more detail later. Adjusted EPS was up significantly with all segments contributing. Industrial free cash flow was up $2 billion. Ex-discontinued factoring programs, primarily driven by improved earnings and working capital. We're encouraged by our second quarter cash performance, and we're raising our full-year industrial free cash flow outlook to $3.5 to $5 billion, while our outlook for organic revenue growth, margin expansion, and adjusted EPS remains unchanged. I'll take a moment here to speak to the dynamics at Aviation. Market fundamentals are improving. There was a sizeable uptick in departures this quarter, with even greater momentum in June and July. Unsurprisingly, departure trends continue to vary by region. North America continues to improve, with Canada now picking up the pace. Europe has accelerated with departures now 40% below '19 levels. Carolina Dybeck Happe: Thanks, Larry. Our quarterly performance reflects continued progress in our transformation. During a recent operating review, we're gaining traction with increased granularity across our financials. Our financials, are providing more insightful, faster analysis, which is driving better outcomes. Looking forward, we're focused on building even deeper visibility and accountability, partnering cross-functionally, to unlock margin expansion and improving working capital management to generate more cash flow. Now, looking at Slide 4. I'll cover our highlights on an organic basis. In the quarter, we returned to growth on the topline. Healthcare and Services overall were strong. In particular, Services continued to keep us close to our customers and represent more than half of our orders and revenue. Total orders were up 7% sequentially, and Aviation and Power were up more than 40% year-over-year. Services orders were up 50%, where Renewables and Aviation doubled, and Gas Power and Healthcare grew double-digits. Larry Culp: Carolina, thanks. We turn to Slide 9. I'm incredibly proud of the GE team's performance in the second quarter. As you've seen, orders and revenue returned to growth, operating margin expanded across all segments, and we generated positive free cash flow. Importantly, Aviation is showing the early signs of a recovery, and we're clearly building momentum across our businesses. Combined, this gives us the conviction to raise our free cash flow outlook to $3.5 to $5 billion for the full year. I hope you see what I see, a transformation that is accelerating. GE is becoming a more focused, simpler, stronger, high-tech industrial. And our efforts and impact extend beyond GE. We've always felt a heightened sense of responsibility when it comes to creating a more sustainable future. We recently released our annual sustainability report this month, which shares how we're tackling the world's biggest challenges through innovative solutions, developing the future of flight, advancing precision health, and leading the energy transition. For example, the CFM RISE Program that we've announced with Safran demonstrates our shared vision for the future of flight as we target reducing fuel consumption and carbon emissions by more than 20% versus today's most efficient engines. As we rise to the challenge of building a world that works, serving customers in vital global markets, we'll stay focused on profitable growth and cash generation, which I'm confident will lead to high single-digit free cash flow margins over the next few years. Steve, with that, let's go to questions. Steve Winoker: Before we open the line, I'd ask everyone in the queue to consider your fellow analyst again and ask 1 question so we can get to as many people as possible. Brandon, can you please open the line? Operator: Thank you. . And from Citigroup, we have Andy Kaplowitz. Please go ahead. Andy Kaplowitz: Good morning, guys. Larry Culp: Good morning, Andy. Carolina Dybeck Happe: Good morning, Andy. Andy Kaplowitz: Your industrial free cash flow result was good in the quarter and that looks like it's helping you to be able to raise your industrial free cash flow guidance. Could you give us more color where cash has been trending better than your expectations? It looks like Aviation and Healthcare seem ahead. And then could you also talk about the differences between your performance in cash flow and earnings, as you obviously didn't raise your EPS forecast for the year despite the significant raise in cash guidance? Carolina Dybeck Happe: Andy, that would be my pleasure. Let me start with the second quarter, and what happened in the second quarter. When we were talking to you mid-quarter, we were expecting around negative 400 million in free cash flow for the quarter. While that was the target we thought was achievable. We clearly came in much better and we were able to do much better. Where did that come from? Well, it's a combination, both Power and Healthcare continued to be strong both on profit and on cash. In Aviation, we saw cash come in much better. And that was really two-fold. One part was the new orders with progress payments that?...? and on the other hand, we have less because our customers didn't ship as many aircraft as expected and therefore, we paid out less So with that bit, you can say the basically we are rolling that bit into our updated free cash flow guide, right, so we're raising it from 2.5 to 4.5 to 3.5 to 5, and if you do the midpoint there, you basically see that cash roll through. About half of that improvement comes from earnings, and half comes from working capital and other offsets. And if we then compare with what happened on earnings. Clearly on earnings, we also saw the improved or the strengthening from Power and Healthcare, and we had underlying Aviation as expected. What we also had in the quarter, was a small charge of 400 and that's a non-cash charge. If you take our guide for EPS, which is $0.15 to $0.25, we are now obviously rolling in the results of the second quarter, including that non-cash charge into that number. That said, we do expect to be in the better part of that range for the full year, thanks to the good momentum that we are seeing in the businesses, both in Aviation recovery and the other businesses strengthening their operational performance. Operator: From Goldman Sachs, we have Joe Ritchie. Please go ahead. Joe Ritchie: Hi. Good morning, everyone. Larry Culp: Good morning, Joe. Steve Winoker: Good morning, Joe. Joe Ritchie: This is a 2-part question for me because there's a lot of focus on Aviation margin this quarter. I really want to ask about the contract margins and also green time utilization. On the contract margin reviews, I know that you guys do these quarterly, but I remember last year when you were doing your impairment tested, you really made a concerted effort to look at the 20% of your portfolio that was high-risk. And so I'm curious. As you think about the expectations for low double-digit Aviation margins for the rest of the year, I'm just wondering what confidence do you have that you won't take another charge on the contract margin reviews? And then, any other color that you can provide us on green time utilization impact for the second half and into 2022? Carolina Dybeck Happe: Let me start with the and the margin s. And I think stepping back, Aviation Service margins are very attractive. And what we had in this quarter was a loss contract, and that's very rare. We have about 200 CSA contracts in our portfolio and there are only a couple of them that are loss - making, and we're not expecting that impact to repeat. The length of the contract is around 15 to 20 years. And the processes we have are rigorous and the controls are working. And it's really cross-functional efforts where because they are under operations and commercial are working together to update the estimates, we have access from last year, and then making a calculation for what the margin should be. In this quarter, with this 1 contract, since that turned into a loss-making contract, what technically happens then is that you don't only update history to that new margin, you also pull forward all the expected or possible losses that you would have going forward on that contract into the second quarter. And that's why it had such a big impact in the quarter with almost 300 from that. What I would say though is that, more importantly is how we're working to improve how we operationally do our services. We're working to reducing turnaround times, we're working to get the engines back to our customers faster, and lowering the cost of our overhaul. If you think about that, that brings us to lower costs, lower cash, and happier customers. That's operationally what's really important for us. And then your question was, what about this going forward? When we look into the second half, as we've said, we do expect departures to improve. And if you look at the Aviation margin in the second quarter, excluding this impact, it would have been 11% plus, so double-digits, or low double-digits. And that's why we're holding the low double-digit margin. And I would say, when we look at the second half, what will impact the second half, we talked about shop visitor volume, the mix, the scope and we do expect that the shop visit trend will move favorably for us. And then we'll continue to have the quarterly CMR process, as is. Steve Winoker: And Joe just to add with Carolina said, with respect to green time and that clearly is one of the variable, it's not the only one that sits between the departure trends and what we see with respect to shop visit activity. So I think our view is that we will continue to see strong year-over-year shop visit numbers. I think we'll see a gradual continuation of the improvements sequentially as well, that suggests a number of these impediments why green time fade with time, but they don't disappear, I think, as we work through the second half. So sequentially, we think we're going to see a continued gradual improvement. We think we will, as Carolina just said, see some slight improvement with respect to scope. All good, we're obviously watching some other variables here like the Delta variant. But at this point, I think we're optimistic about the second half performance in Aviation Services. Operator: From Bank of America, we have Andrew Obin. Please go ahead. Andrew Obin: Hi guys. Good morning. Larry Culp: Good morning. Carolina Dybeck Happe: Good morning, Andrew. Andrew Obin: Just a question on Aviation. Can we just talk about shop services versus spares services up 50%, spares up 15%? Can we just talk about the used serviceable parts dynamic perhaps driving the gap? And more importantly, how do you expect this to develop over the next 18 months? How should we think about the shape of the aftermarket recovery incorporating this used serviceable parts phenomena? Thank you. Larry Culp: Keep in mind, when we talk about -- we use the word spares in a couple of different context. But primarily, spare engines are really a function of fleet planning. And given where folks are at this point both in terms of activity and cash conservation, I think in part that's why you see the spares of recovery, perhaps being a bit more muted than the strong bounce back we're seeing in shop visits. And then we talked about green time earlier, I'd say USM is another one of those variables that sits between a direct 1-for-1 transfer from departures to our activity. That said, I think that we haven't seen much by way of USM to-date, I think as we play forward through the second half of this year and into next year, I think we're anticipating that that will be a growing, but still a modest headwind for us, so we may be trade out a little less green time for a little bit more USM. But keep in mind as well, USM doesn't happen to GE Aviation. We're an active consumer, user of USM as well. So it will help us in some respects lower our costs with respect to the delivered services we provide our airline customers. So a number of dynamics there but certainly one that we have an eye on as well as we think about the back half, but maybe more importantly, '22. Operator: From JP Morgan, we have Steve Tusa. Please go ahead. Steve Tusa: Hey, good morning. Larry Culp: Good morning, Steve. Carolina Dybeck Happe: Hi, Steve. Steve Tusa: Thanks for all the detail as usual. Just a question on the receivable side, and note for on the unconsolidated receivables activity. For the first half, I think it's been about 5 billion. It's kind of consistent with what you did in the first quarter. Is that number -- it's been running kind of 10 to 12 billion I think over the years, is that number going to be consistently in that range? And then secondly, just on this charge, can you just give us some color as to like what type of engine? Is it narrow bodies, and should we expect the same at Safran, if that's the case? Carolina Dybeck Happe: Okay, Steve. So maybe I'll start with the receivable question there. I think it's important when we look at receivables to put that in context with our volume, and obviously looking at it excluding factoring so that we can see what traction are really getting and what is our DSO because that's the best way of measuring how we're improving or not on our underlying performance on working capital management. And when it comes to receivables and DSO, we have actually improved significantly compared to a year ago. I would say, of all the working capital metrics, is that's the one that is moving -- that's moved the furthest. Of course, you have seasonality with the volumes and the different businesses, but that's how I would look at it to look at attraction, and we are very happy to see that that positive trend has developed over last year with all the work we put into it. And I do believe that now with factoring soon, well out of the game, that will help us drive billings and collections earlier in the quarters and therefore also improve overall the DSO. So good improvement there, but probably even more opportunity going forward on that topic. And the other question you had was on the charge. Steve Winoker: Steve, on the CMR s, it was a narrow-body oriented contract that we trued up in the quarter. With respect to the second part of that question regarding Safran, we'll leave their reports to them. I think they'll report later in the week. Operator: From Barclays, we have Julian Mitchell. Please go ahead. Julian Mitchell: Hi. Good morning. Just wanted to, perhaps, switch the focus to Renewables for a second. I understand that there was a lot of headwinds already from legacy projects and so forth, in aspects such as grid and hydro. But also on the wind side, it seems there is more cost pressure and maybe some project revaluations going on as well as some of your peers. I just wondering if you could give us an update on how comfortable you are with that trajectory of profitability expansion at Renewables and how much more concerned you are about cost headwinds in that business this year and into next? Carolina Dybeck Happe: Good morning. Yes. When we talk about Renewables, I will just start by saying that we're proud with the improved margin. We improved 520 bits year-over-year in Renewables. But when looking at Renewables, you really need to look at the different pieces, a bit like you did. Starting with Onshore Wind, this is the second quarter where we are positive for full Onshore Wind, and that's a significant improvement compared to last year. And we expect to be positive already in 2021 for the full year. And in the second half, we will expect that the services come back even more, including more repower, and we will continue our journey to take more cost out. Offshore Wind, that's more of the investment for the future. I would say you'll see more of that in our numbers beginning 2022. Grid. In grid, we're continuing the turn around, and we saw good momentum in that. We see better cost-out, we saw better project execution. We are being tougher and having deal selectivity and the restructuring is progressing as planned here. If you take all of that together, you get to that 520 bps improvement year-over-year but it also gives us comfort that we will be positive in 2022, just building on that momentum of operational improvement. We're cautious of inflation and we're watching the PTC dynamics and how that will impact us. But we do see good tailwinds from growth, increased services and digital, as well as our cost reduction. Operator: From Wolfe Research, we have Nigel Coe. Please go ahead. Nigel Coe: Thanks. Good morning, everyone. Larry Culp: Good morning, Nigel. Nigel Coe: I've got a question on progress collections. But I do want to just tap on your comment on the factoring, Carolina. And just to confirm, it's not the sales that's the important thing here, it's the amounts outstanding, it's the balance outstanding. I think the 10-Q says that's down from 6.6 billion on Jan 1 to 3 billion at the end of June. Just a thumbs up, that's the bill metric we should be focused on here. And then on the progress that's been $1.3 billion headwinds in the first half of the year. Just wondering how you see that developing in the second half of the year, recognizing that there is some volatility with Renewables. What's in your plan for the second half on progress? Carolina Dybeck Happe: Yes. Nigel, on the receivable and on the factoring, you're right, that's exactly how to look at it. We started the year with almost 7 billion in factor receivables. We took 800 of that out in the first quarter. You saw us take another 2.7 out now, and we have about a billion to go until year end, and then we'll end the year with around 2 billion, which is what we've talked about. So that's how you get to those numbers, so you're absolutely correct. When it comes to progress, so if you look at the Quarter this year, you have to compare to -- well, progress last year because if we got to look at the delta ahead, progress last year was including the big military progress payments that we got, which obviously didn't repeat now in the quarter. This quarter, we had a lot of deliverables in Renewables, so basically, taking down progress and that's really why it was negative compared to the deliverables. For the rest of the year, well, that will depend a bit on the dynamics of the PTC because we've talked about that the biggest variable for our guide, the cash guide, the 3.5-5, one of the big parts there is the PTC dynamic and if that will change our customer behavior so that they will push out orders that we were expecting to be placed before year end to next year. And the other one on progress will obviously be also depending on Aviation and how that plays out over the second half of the year. Operator: From Vertical Research, we have Jeff Sprague. Please go ahead. Jeffrey Sprague: Thank you. Good morning, everyone. Larry Culp: Good morning Jeff. Carolina Dybeck Happe: Hi Jeff. Jeffrey Sprague: Good morning. another one, just on cash flow and factoring here, just make sure we have all this squared away. Just on the unconsolidated receivables facilities. Can you just give us a sense of what kind of volume you will run through that this year? And just kind of on an all-in basis, is that facility isolated to itself actually a source or use of cash flow in 2021 versus 2020? And also, just why continue with that particular facility if factoring is driving behavior you don't like under the factor and forget s behavior, what is it about maintaining this particular facility? Why does it make sense and there's a particular business that you're running through this facility? Thank you. Carolina Dybeck Happe: Hi, Jeff. On factoring, I would say that the important part is taking it down to a reasonable level. What we are talking about is ending this year with our revenues to have about 2 billion of factoring, and that's basically long - term securitization. And that is part of normal doing business, and that's similar to what other peers are doing. I would say, that is an effective part of financing and reducing risks and using it for the right reasons, while all the rest we're taking out to make sure that we focus on the core, which is really the billing and pushing billings up earlier into the quarter. If you're not going to get that money automatically by the end of the quarter, you are going to be much more motivated to start billing and collecting earlier in the quarter. Operator: From RBC Capital, we have Deane Dray, please go ahead. Deane Dray: Thank you. Good morning, everyone. Larry Culp: Morning Deane. Deane Dray: Hey, since it's such a big sector-wide headwind, I wanted to ask about the supply chain pressures and I think you called it out twice or two areas, Military Aviation and in Healthcare and Healthcare resins and electronics. So that's pretty much what we're expecting, but could you size for us, are they missed revenues or would they be deferred revenues? And for Carolina, the increase in inventory, is that for buffer stock or also to anticipated increase demand? And what's the mix there? Thanks. Larry Culp: Deane, I think if you look at what we have been wrestling with resin semiconductors like so many and other commodities on a spot basis, I think the vast majority of the effects are basically in our backlog today, now past due to customers. So I don't think we are going to try to frame that size-wise, but it did have, I would say, modest impact on our revenues and our cash this quarter. And we really want to make sure that we're doing all we can, both with the vendor base and frankly, with our own processes to clear that. We don't like the foregone revenue, more importantly, we're late with the customer in a number of instances. I think as we look at this instance we might have lost, I'm not sure we can really pinpoint particular orders that went elsewhere because our lead times have been pushed, again, because I don't think this is an isolated GE dynamic. But we're working hard to make sure that that doesn't happen to the extent we can avoid it in the second half. it's a day-to-day battle. It's tactical, far more than it is strategic on balance. But the teams are hard at it as you can imagine, on a daily basis. Carolina Dybeck Happe: Yeah. And on your Inventory question, I would take a couple of things. Within Inventory, one part is volume build for Renewable and delivering expected to be in the second half. right but we also have, I would say, a bit too much inventory still because of the fulfillment delays that we have since. We talked about it in Aviation but there's also some stretch in Healthcare. Overall, we are improving the turns in inventory as well But it is getting tougher with challenges on the supply chain side. So more work to do even in this environment. Operator: And from UBS, we have Markus Mittermaier. Please go ahead. Markus Mittermaier: Hi. Good morning, everyone. Larry Culp: Good morning, Markus. Carolina Dybeck Happe: Good morning, Markus. Markus Mittermaier: Good morning. Just a quick one on Power, if I may. Power Services, you mentioned that is now again above 20 19 levels. How should we think about that? Is that a catch up on outages from last year, or is it already reflecting the strong installs that we had in 2017 to 2019, those coming off warranty. And then finally, Carolina, you mentioned that once the Steam restructuring is done that revenue stream will be two-thirds services. Any indication of what we should expect there in terms of margin? Thank you. Larry Culp: Markus, I think you've got a pretty good handle on what we're seeing in Gas Services, right? We've got two quarters here in a row now that have been positive, clearly the comps a year ago that we're working against are fairly easy. But if you go back to '19, we're up against 19 levels where a number of the reasons that you highlighted. We do know the second half, given the way COVID played out last year, will present some tougher comps but I think we're encouraged by both what we saw with CSAs and the transactional activity. As we look to the second half, I think in all likelihood going to do better than that low-single-digit revenue guide that we talked about for services. Now that will be more a first-half result than it will be the second half, but we do see, I think, higher outages with the contractual business. I think the teams on the transactional side are doing a better job, day in, day out. We had higher backlog coming into the year. I liked the execution improvements that we're seeing largely by way of Lean. And in turn, I think as we put more emphasis on the top, you're also seeing that flow through to the bottom. which is part of the reason we're seeing the strong margin improvements in Gas and in Power broadly, not only year-over-year, but again, with respect to the comparison versus 2019, where for the segment, I think the margins are up now over 600 basis points versus since the second quarter 2019. We know that this is never going to be a high growth business for us, but certainly it's a business we can run better and can be a stable business for us and I think you see that shaping up here in '21. Carolina? Carolina Dybeck Happe: Yes, and on steam restructuring. I will start by saying that Valerie and her team are doing a really good job in this big transformation of steam. And on the other side, that's why we mentioned it, this will be mainly a services business. So obviously that's a good place to be in. What the margins will be? Well, I would just say that service margins are always expected to be strong and we expect them to be strong. Probably slightly lower than Gas, but we see where that ends. Operator: Thank you. And we've reached the end of our time today. We'll now turn it back to Steve Winoker for closing remarks. Steve Winoker: Thanks, everybody. Appreciate your time. I know you have a very busy Earnings day. My team and I stand ready to help. Take care. Operator: Thank you. Ladies and gentlemen. This concludes today's conference. Thank you for joining. 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.
