A month has gone by since the last earnings report for General Electric Company (NYSE:GE).
Shares of GE have lost about 7.3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout?
Before we dive into how investors and analysts have reacted of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
GE Beats Both Q1 Earnings & Revenues, Affirms 2017 View
Despite a challenging macroeconomic environment, sustained restructuring initiatives for a leaner firm with a re-focus on core operations enabled General Electric to report relatively strong first-quarter 2017 results. GAAP net earnings from continuing operations for the reported quarter were $858 million or 10 cents per share compared with $248 million or 3 cents per share in the year-ago quarter.
Including industrial and other verticals, operating earnings were 21 cents per share and remained flat on a year over year basis. Operating earnings (including industrial and other verticals) for the reported quarter beat the Zacks Consensus Estimate by 4 cents per share.
GE Revenues Declined But Beat Estimates
Total consolidated revenue for the reported quarter decreased 1% year over year to $27,660 million but surpassed the Zacks Consensus Estimate of $26,362 million. While the Industrial segment revenue improved 1% year over year to $26,016 million, GE Capital revenues declined 7% to $2,681 million. Organic revenues for the Industrial segment increased 7% for the quarter to $25,981 million.
Total orders for the quarter for the Industrial segment increased 10% year over year to $25.7 billion, with significant order improvements from the Transportation and Aviation segments, partially offset by decline in Energy Connections.
Total backlog of equipment and services at quarter-end was $324.3 billion, up 3% year over year.
GE Revenue by Segment Is Critical to Consider
Revenues from Energy Connections & Lighting decreased 35% to $2,747 million on softer oil & gas and Industrial Solutions markets. During the reported quarter, Oil & Gas revenues declined 9% year over year, due to macroeconomic headwinds and volatility in oil prices, to $3,001 million. Revenues from the Aviation segment were up 9% year over year to $6,804 million largely due to higher services revenue. Transportation revenues improved 6% year over year to $1,039 million on higher locomotive shipments.
Power segment revenue was up 17% year over year to $8,479 million with strong revenues from core equipment. Revenues from the Healthcare segment improved 3% to $4,291 million due to solid volume and cost productivity. Revenues from the Renewable Energy segment were up 22% year over year to $2,044 million largely due to higher services revenue.
Revenues from the GE Capital segment decreased 7% year over year to $2,681 million. During the quarter, GE Capital returned $2 billion in dividends to parent General Electric.
GE Margins, Balance Sheet and Cash Flow Tell a Tale
General Electric recorded an improvement in margins in the reported quarter due to stringent cost-cutting and simplification initiatives. Industrial segment operating profit increased 9% year over year to $3,622 million, with a rise in profits in Power (up 39%), Renewable Energy (up 29%) and Aviation (up 10%), partially offset by a significant fall in profits in Oil & Gas (down 33%) and Energy Connections & Lighting (down 10%). Total segment profit increased 48% year over year to $3,575 million. Operating margin for the Industrial segment increased to 12.6% from 11.3% in the prior-year period.
Cash generated from operating industrial activities for the quarter totaled $370 million. Cash and marketable securities at quarter-end aggregated $83.5 billion, while free cash utilization was $267 million. The company returned $4.4 billion to shareholders during the quarter, including $2.3 billion in share buyback.
GE Restructuring Initiatives Continue
During the quarter, General Electric completed the last major asset sale transaction of GE Capital exit plan in order to retrace its engineering roots. The company sold GE Money Bank – its French consumer finance business – and its operations in the French Overseas Territories to an affiliate of Cerberus Capital Management L.P., for an undisclosed amount.
The company remains on track to close the integration of its Oil & Gas business with Baker Hughes and expect it to be complete by mid-2017.
GE’s Outlook Reiterated
General Electric aims to build upon the momentum for a healthy rise in operating profit and reaffirmed its guidance for 2017. The company continues to anticipate operating earnings to be within $1.60–$1.70, with organic growth of 3–5%. General Electric intends to return $19–$21 billion to the shareholders in 2017, including $8 billion in dividends and $11–$13 billion in share repurchases.
In addition, the company expects to generate $18–21 billion in cash flow from industrial operations in 2017.
How Have GE Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 15.7% due to these changes.
Zacks VGM Scores for GE
At this time, General Electric’s stock has a subpar score of ‘D’ on both growth and momentum front. Charting a somewhat similar path, the stock was allocated a grade of ‘C’ on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of ‘D’. If you aren’t focused on one strategy, this score is the one you should be interested in.
The company’s stock is suitable solely for value based on our styles scores.
GE Stock Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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