General Electric (GE) Stock Falls on Renewable Energy Weakness

  • General Electric (GE) stock is conspicuously declining amid an up day for the market.
  • The company reported a decline in third-quarter earnings and trimmed its full-year profit forecast.
  • GE stock faces challenges from its onshore wind business.
Company breakups: The General Electric GE logo on a building
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Despite optimism in the major indices, General Electric (NYSE:GE) is conspicuously declining Tuesday afternoon. In its third quarter, the company reported a reduction in earnings, primarily stemming from “higher warranty and related reserves at its renewable energy business,” per Reuters. This morning, GE stock dropped about 2% before paring back some losses in the afternoon.

Exacerbating these disappointing profit declines, General Electric also lowered its adjusted earnings forecast for 2022. Now, management expects earnings to come in between $2.40 and $2.80 per share. That’s down noticeably from the $2.80 to $3.50 per share the company projected at the beginning of the year.

According to the Wall Street Journal, back in July, General Electric “warned that it expected results to come in at the low end of the initial range.” Reportedly, analysts had projected earnings of $2.66 per share for 2022 before the update. Naturally, investors also digested this news item poorly, sending GE stock lower.

On the positive side, General Electric did maintain its forecast for 2022 revenue growth. However, the company’s free cash flow is now expected to come in at the low end of its prior forecast as well.

Onshore Wind Imposes a Headwind on GE Stock

General Electric still plans on breaking up into three companies. This initiative will commence with a spinoff of its healthcare business in January. However, for GE stock currently, the company’s power segment remains the laggard. Specifically, GE faces tough challenges in its onshore wind business.

Representing the largest unit of GE’s renewable businesses, onshore wind has been facing “higher raw material costs due to inflation and supply-chain pressures.” Reuters elaborates:

“In the United States, which has been GE’s most profitable onshore wind market, policy uncertainty following the expiry of renewable electricity production tax credits last year has hurt demand, contributing to a 15% year-on-year drop in renewable energy revenue in the September quarter.”

General Electric CEO Larry Culp reiterated that onshore wind represents the “battleground” for GE stock. Ultimately, management aims to make its renewable business profitable by 2024. While an eventual restoration of tax credits for wind projects should boost demand, General Electric now expects “renewable energy losses of about $2 billion this year.”

To address brewing obstacles, the company will reduce headcount at its onshore wind unit by approximately 20%. General Electric says that “corporate restructuring along with cuts at renewable energy business will cost $1.3 billion and generate $950 million in annualized savings.”

GE stock has gained more than 12% in the past month but is still down more than 20% so far this year. Looking forward, significant challenges presumably await this industrial conglomerate before it can holistically reassure Wall Street.

On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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