Wall Street will be watching closely on Friday when General Electric Company (NYSE:GE) reports earnings. The industrial giant, which claimed the world’s largest market cap as recently as the early 2000s, now finds itself fighting for its survival. Analysts will pay close attention to revenue and earnings, but how GE stock fares against peers such as Honeywell International Inc. (NYSE:HON) or 3M Co (NYSE:MMM) will not be the priority.
The more significant focus will involve progress on its restructuring and news on actions that have been or will be taken.
Wall Street expects lower General Electric earnings
Analysts expect General Electric earnings for the first quarter of 2018 to come in at 11 cents per share. That’s down from 21 cents per share in the same quarter last year. They also predict revenues for the quarter to come in at $27.52 billion. That would represent a modest drop from the $27.66 billion in revenues seen in the first quarter last year.
Another critical number will be the General Electric earnings guidance. In November, the company announced that it expected to earn between $1.00 and $1.07 per share in 2018. Analysts have held to consensus estimates of 96 cents per share. This indicates expectations run high for some level of downward revision.
General Electric earnings have come in below estimates for the last two quarters. John Flannery took over the CEO position from Jeffrey Immelt on Aug. 1. Hence this report will serve as the second report where Flannery held the job for the entire quarter.
Since Flannery took over, he has worked to address GE’s core balance sheet issues. Although an earnings beat would ease some concerns, investors will likely center elsewhere.
Asset sales and cash flow remain a focus
One area of focus will likely be progress on plans to sell $20 billion worth of assets. Those assets include the light bulb business, the symbol of GE, and one that the company held since Thomas Edison founded GE in 1892.
Many also expect a spinoff of the Transportation division, which the company has also owned for over a century. This division would net an estimated $7 billion for the company.
Netting cash remains a priority for GE. The fourth quarter of 2017 saw a net change in cash of $3.7 billion. This marks a vast improvement from 4Q 2016 when the company’s cash balance fell by almost $5.9 billion. Whether the company can achieve positive cash flow for 1Q 2018 remains unclear.
However, cash flow was helped by the recent dividend cut, which will reduce quarterly cash outlays by $1.1 billion per quarter. As long as investors see an improvement over the nearly $7.2 billion outflow seen in the 1st quarter of last year, I doubt this figure will alarm investors.
Investors Want to Avoid “Surprises”
Most of all investors should look for further surprises, namely related to the remainder of GE Capital and pensions. In January, GE revealed a surprise $15 billion shortfall in its long-term care insurance business.
Also revealed in January was the actual cost of the pension liability, then estimated at $31 billion. This has since come down by $2.4 billion. Still, it remains by far the largest pension shortfall in corporate America.
Lockheed Martin Corporation (NYSE:LMT) and Boeing Co (NYSE:BA) have the second and third largest shortfalls. Their combined liability stands at $33.3 billion, only $4.6 billion higher than the deficit GE faces on its own.
Naturally, this created worries about what other “surprises” remain in store for the company. However, if the earnings report addresses progress on past surprises instead of new revelations, it should help restore confidence to GE stock.
Final Thoughts on GE Stock Earnings
General Electric earnings will weigh on the minds of investors in Friday’s upcoming report. Still, further surprises remain the biggest danger. Analysts expect 11 cents per share in GE earnings for the first quarter. That will represent a large drop from 2017’s first quarter numbers. However, that news has likely been priced into the shares.
Investors will more likely focus on progress seen in the company’s restructuring plans. They will also look for improvements in cash flow, and progress in addressing the “surprises” from earlier this year.
GE faces serious challenges as it works to restructure the company and shore up its balance sheet. However, if the company can show progress and avoid surprises, GE stock could soon become a buy.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.