2018 didn’t go well for the industrial sector, as stocks in the space were battered the most due to trade conflict worries, slowing Chinese manufacturing activities, the weakening housing market, and the Fed’s interest rate hike in December. The S&P 500 Industrials Index, which measures the performance of stocks in the industrial sector, fell ~18% last year, much higher than the value lost by the major US indexes. In 2018, the Dow Jones, the NASDAQ, and the S&P 500 indexes fell 5.6%, 3.9%, and 6.2%, respectively.
However, in last year’s wild market scenario, General Electric (GE) stood out as the most battered stock in the industrial sector (XLI). The stock was also the third-worst performer among the NYSE listed stocks after Coty (COTY) and Mohawk Industries (MHK). Additionally, during the year, the company lost its A-level credit rating and was booted out of the Dow Jones’s 30 stock index list.
The free fall in GE stock that started in 2017 continued throughout 2018. The company’s stock fell ~45% in 2017. However, the downtrend was even steeper in 2018 with the company losing 56.6% of its value. Coty and Mohawk lost 67% and 57.6% of their respective value last year. The decline in GE stock was much higher than competitor Honeywell International (HON) and United Technologies (UTX), which lost 5.6% and 6.4%, respectively, of their value last year.
Factors causing slump
Dismal quarterly results and debt concerns have taken GE stock near its ten-year low. The stock declined the most after its dismal third-quarter results on October 30. GE’s third-quarter revenues and EPS results fell short of analysts’ expectations and declined significantly on a YoY basis.
Furthermore, GE is a highly leveraged company and hasn’t been able to generate sufficient cash flow to service its debt. At the end of the third quarter of 2018, the industrial conglomerate had a debt of $115 billion on its balance sheet. Additionally, its free cash flows were negative in all three quarters of 2018, which indicates the company’s severe liquidity problem.
On November 12, GE’s cost to insure debt “hit its highest level since 2012 as bond prices have fallen, with some now trading far below par,” Reuters reported citing data from IHS Markit and Refinitiv.