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GE stock rebounded later Tuesday. General Electric ( GE ) suppressed revenue estimates for the second quarter, led by its jet-engine unit. Wall Street cheered “outstanding” results in that business as it looks to emerge as an aviation-focused company in 2024.
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Despite a big Q2 earnings beat, General Electric only affirmed its full-year EPS guidance and lowered its 2022 free cash flow (FCF) outlook by $1 billion due to pressure on working capital.
“We are improving supply, cost and cost performance through a lean and decentralized[strategy],” GE CEO Larry Culp said in a July 26 earnings call. “Despite this progress, companies are still uncertain about the external pressures they are currently facing.”
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GE earnings surprise in Q2
In Q2, General Electric’s earnings nearly doubled to 78 cents per share. Revenue rose 6 percent to $17.88 billion. Analysts were expecting EPS of 37 cents, down 6.5% year-over-year, and revenue of $17.457 billion.
Free cash flow came in at $162 million, defying cash burn views of more than $800 million. Orders grew 4% due to growth in services and equipment. Margins are spread by 380 basis points.
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Among GEE industry segments, revenue grew 27 percent in aviation, and 4 percent in health care and energy. It fell 20% in renewable energy, which was the only business unit to post a Q2 loss.
“Aerospace was a key driver of our performance this quarter as the industry’s recovery accelerated,” CEO Kulp said in a news release. In Q2, aviation orders jumped 26% year over year. The commercial and military jet-engine business both grew 47% higher in service demand, benefiting from higher store visits and parts sales. But commercial motor loads have fallen, with supply cuts affecting supply.
On Tuesday, GE confirmed tax-free awards for its healthcare business in early 2023 and its energy business in early 2024, after which it will emerge as an aviation-focused company.
GE keeps an eye out.
GE continues to move toward the low end of its 2022 outlook. This includes guidance for high single-digit revenue growth (20% for Aviation) and adjusted EPS of 2.80-$3.50. But GE adjusted its FCF guidance range, expecting $1 billion of that flow to push beyond 2022 due to supply chain challenges and working capital pressures.
The 2022 EPS guidance — after a strong Q2 — suggests a weaker-than-expected second half of the year, RBC Capital Markets analyst Dean Drye wrote in a note on Tuesday. “However, we believe there is an appropriate amount of conservatism baked into it,” he added.
Aviation was “standout” amid broad-based top-line strength in Q2, Dray noted. He added that free cash flow was another “bright spot” and expected the $1 billion FCF push to eventually return.
The analyst rated GE stock with an outperform rating, with a $94 price target.
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GE stock regained a key level
Shares rose 6.5 percent to 72.79 in Tuesday’s stock market trading. General Electric topped the 50-day moving average for the first time since April and is poised to extend its winning streak to eight sessions. Earlier in July, GE stock hit 20-month lows.
GE stock’s relative strength line will begin to shrink after the decline. A rising RS line means a stock is outperforming the S&P 500.
GE Aviation holds the key
such as Raytheon Technologies ( RTX ), General Electric plans to focus on its high-growth aviation business, leaving the legacy corporation behind. GE plans to complete the major split in early 2024.
Rayton and 3 million (MMM) also reported on Tuesday morning. Shares of Raytheon fell 3.1% on Tuesday after missing Q2 earnings. 3M stock jumped 5.2% after the Q2 beat. Among other peers, Roper Technologies ( ROP ), which beat Q2 earnings views on July 22, fell 0.7 percent.
Both GE and Raytheon are manufacturers of jet engines Boeing (BA), which landed several new jet orders at the Farnborough International Air Show last week. Boeing reported early Wednesday.
In the year On July 18, GE confirmed its historic split is on track and named three public companies that will emerge in 2023-24: GE Aviation, GE HealthCare and GE Vernova (which includes its power and renewable energy businesses). After years of costly restructuring efforts, General Electric announced its biggest breakup last fall. Investors also fell in love with the conglomerate business model.
And on July 18, the industry giant announced that Delta Air Lines (DAL) and Qatar Airways have selected their Lip-1B engines to power their Boeing 737-10 fleet.
Year-to-date, GE stock is down 23 percent. Raytheon rose 6.4 percent.
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