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GE Earnings: Positive Surprise, Higher Guidance, Stock Surges

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General Electric (GE) reported its third-quarter earnings today. Overall, it looks like Culp’s magic is real.

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GE earnings beat the estimates

General Electric’s third-quarter revenues came in at $23.4 billion, which beat analysts’ expectations of $22.9 billion. GE’s adjusted EPS of 15 cents also beat analysts’ expectations of 11 cents. The company raised its 2019 free cash flow outlook. Now, GE expects its industrial free cash flows to be between $0 and $2 billion compared to its previous guidance of -$1 billion to $1 billion. Part of the improvement was due to lower restructuring cash costs.

GE’s earnings boosted its stock in the pre-market. At 7:19 AM ET, the stock rose 5.1%. The company’s incremental progress is seen as an endorsement to CEO Larry Culp. After terrible headlines over the last few months, GE’s third-quarter earnings will be a relief for investors and Culp.

Segmental performance

The revenues from General Electric’s power segment fell 14% during the quarter to $3.9 billion. However, the segment’s losses narrowed to $144 million from $676 million in the third quarter of 2018.

The company’s renewable energy segment fell to losses despite reporting higher revenues. The segment’s revenues during the quarter rose 13% to $4.4 billion, while the losses were $98 million.

General Electric’s aviation segment’s revenues rose 8% to $8.1 billion, while the segment’s profit rose 3% to $1.7 billion. The healthcare segment was a star performer in GE’s third-quarter earnings. The segment’s revenues rose 5% to $4.9 billion, while the profit increased 13%.

GE Capital continued to be the company’s Achille’s heel. Notably, GE Capital’s revenues fell 15% with its losses coming to $645 million.

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Orders and order backlog

General Electric reported $22.5 billion in new orders during the quarter—a 5% decline compared to the same quarter in 2018. However, the order backlog increased 14% to $386 billion. While the Power segment’s orders fell drastically, the renewable energy segment made up for it with a 32% increase. The aviation segment’s orders fell marginally, while the health care segment’s new orders showed a marginal improvement.

GE’s transformation continues

GE took steps to improve its financial position during the quarter. The company generated $9 billion in cash from divestitures. During the quarter, General Electric sold part of its stake in Baker Hughes (BKR) for $2.9 billion. However, the deal also resulted in $8.1 billion in post-tax loss from discontinued operations. The company had to de-consolidate Baker Hughes.

GE’s net debt also fell by $6 billion during the quarter due to a $5 billion tender offer. The company divested from its aircraft leasing arm—PK Airfinance.

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End of big industrials’ earnings

Honeywell (HON) beat analysts’ expectations by posting a positive EPS surprise of 7 cents. Notably, Honeywell is a Wall Street favorite with 19 of 24 analysts suggesting a “buy.” Analysts’ current average target price of $183.80 implies an upside of 6%. Jim Cramer, CNBC’s Mad Money host, also suggests a “buy” on Honeywell.

Although Boeing (BA) met analysts’ revenue expectations, it underperformed on the EPS front by a huge margin. However, the stock gained on the day of its earnings due to management’s optimism about bringing the 737 MAX 8 back this quarter. Boeing CEO Dennis Muilenberg is on Capitol Hill today for the second day of the testimony.

Caterpillar’s third-quarter revenues of $12.8 billion fell 6% short of analysts’ estimates. The company’s EPS fell 7.6% to $2.66. The market expected the EPS to stay steady at $2.88. Just like 3M, Caterpillar lowered its 2019 guidance due to a challenging business environment. Cramer also discussed Boeing and Caterpillar’s earnings.

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