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GE Stock Falls on Lower-than-Expected EPS Outlook

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Lower-than-expected earnings outlook

General Electric (GE) stock fell 2% before markets opened today after the industrial conglomerate’s earnings outlook for this year fell short of analysts’ average expectation. GE expects its non-GAAP EPS to fall by 8%– 23% to $0.50–$0.60 this year, lower than analysts’ expectation of $0.70.

The company has forecast its non-GAAP industrial organic revenue to grow by a low-to-mid-single-digit percentage, and its non-GAAP industrial margin is projected to grow between zero and 100 basis points. GE’s non-GAAP industrial margin was 9% last year.

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Negative industrial FCF

In addition to providing weak bottom-line guidance, GE reiterated its earlier forecast of negative industrial FCF (free cash flow) this year, of break-even to -$2 billion.

CEO Larry Culp previously warned of negative industrial FCF during a webcast interview with JPMorgan Chase (JPM) analyst Stephen Tusa. Culp stated that GE’s power business is likely to struggle more this year, which could weigh on the company’s overall cash flow.

Last year, the company generated positive industrial FCF of $4.5 billion despite registering FCF of -$2.7 billion in its power segment. During the webcast, Culp interview clearly said that he doesn’t want to hide the problems with GE’s struggling power business. He said, “We’ll see that be a greater negative number in this year as we work through the restructuring, as we work through the runoff liabilities there and just the localization of timing around projects,” Reuters reported.

GE stock has rallied ~38% this year, outperforming industrial (XLI) peers. Major competitors Honeywell International (HON) and 3M (MMM) have gained 17.3% and 8.5%, respectively.

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