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Weak Power & Transportation Margins to Hurt GE's Q1 Earnings
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General Electric Company (GE - Free Report) is scheduled to report first-quarter 2018 results on Apr 20, before the opening bell. The company is likely to report lower industrial segment profit in the quarter owing to higher operating costs.
Reinstating Earnings
Last week, GE published restated earnings for 2016 and 2017 to reflect new accounting standards, which reduced the reported profits of its industrial operations by 17% last year.
GE's accounting policies had been under scrutiny after earnings slipped to a loss in 2017. The industrial goods manufacturer anticipates 2018 results at the low end of the previous range of $1.00-$1.07 per share. The accounting change will record lower income and asset values per the new standard, which will be reflected when GE reports first-quarter 2018 results this week. GE will also take a $4.24-billion charge in first-quarter results.
CEO John Flannery termed 2018 as a ‘reset year’ and had earlier disclosed his plans to focus on just three core segments — power, aviation and health-care equipment — and gradually exit all other businesses. However, of late, he has hinted at the possibility of the company’s disintegration into separately traded businesses. The company’s shares have lost 39.5% in the past six months, significantly wider than the industry’s decline of 8.8%.
Amid this backdrop, the Zacks Consensus Estimate for the Industrial segment profit in the to-be-reported quarter is currently pegged at $2,660 million, reflecting a decline of 26.6% from the year-ago quarter’s $3,622 million. Total revenues for the industrial segment are likely to be down sequentially to $26,425 million from $32,214 million in fourth-quarter 2017.
Key Operating Segments
Aviation and Healthcare enjoy strong foothold in growing markets, which is likely to benefit GE’s quarterly results.Oil and Gas is still plagued by multiple issues, which limits the company’s prospects.
GE Power, one of the largest business segments of the company in terms of corporate revenues, has been a drag on earnings in the last few quarters as global demand waned with increasing popularity of renewable energy sources, overcapacity, lower utilization and fewer outages. Demand and price for the segment continue to spiral down. Industry experts opine that the acquisition of Alstom’s assets for $10 billion in 2015 compounded the problems for GE.
Further, GE’s upcoming earnings are likely to be hit by high overall expenses. We believe that persistently weak Power and Transportation margins will hurt first-quarter 2018 earnings, despite stringent cost-cutting and simplification initiatives.
Our proven model does not show that GE is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:
Zacks ESP: The company’s Earnings ESP is +7.14% as the Most Accurate estimate is 12 cents and the Zacks Consensus Estimate is 11 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: GE has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Century Aluminum Company (CENX - Free Report) , with an Earnings ESP of +29.41% and a Zacks Rank of 1, is slated to report results on Apr 24.
Watsco, Inc. (WSO - Free Report) has an Earnings ESP of +3.96% and a Zacks Rank of 2. The company is likely to release earnings on Apr 24.
Can Hackers Put Money INTO Your Portfolio?
Earlier this year, credit bureau Equifax announced a massive data breach affecting 2 out of every 3 Americans. The cybersecurity industry is expanding quickly in response to this and similar events. But some stocks are better investments than others.
Zacks has just released Cybersecurity! An Investor’s Guide to help Zacks.com readers make the most of the $170 billion per year investment opportunity created by hackers and other threats. It reveals 4 stocks worth looking into right away.
Image: Bigstock
Weak Power & Transportation Margins to Hurt GE's Q1 Earnings
General Electric Company (GE - Free Report) is scheduled to report first-quarter 2018 results on Apr 20, before the opening bell. The company is likely to report lower industrial segment profit in the quarter owing to higher operating costs.
Reinstating Earnings
Last week, GE published restated earnings for 2016 and 2017 to reflect new accounting standards, which reduced the reported profits of its industrial operations by 17% last year.
GE's accounting policies had been under scrutiny after earnings slipped to a loss in 2017. The industrial goods manufacturer anticipates 2018 results at the low end of the previous range of $1.00-$1.07 per share. The accounting change will record lower income and asset values per the new standard, which will be reflected when GE reports first-quarter 2018 results this week. GE will also take a $4.24-billion charge in first-quarter results.
CEO John Flannery termed 2018 as a ‘reset year’ and had earlier disclosed his plans to focus on just three core segments — power, aviation and health-care equipment — and gradually exit all other businesses. However, of late, he has hinted at the possibility of the company’s disintegration into separately traded businesses. The company’s shares have lost 39.5% in the past six months, significantly wider than the industry’s decline of 8.8%.
Amid this backdrop, the Zacks Consensus Estimate for the Industrial segment profit in the to-be-reported quarter is currently pegged at $2,660 million, reflecting a decline of 26.6% from the year-ago quarter’s $3,622 million. Total revenues for the industrial segment are likely to be down sequentially to $26,425 million from $32,214 million in fourth-quarter 2017.
Key Operating Segments
Aviation and Healthcare enjoy strong foothold in growing markets, which is likely to benefit GE’s quarterly results.Oil and Gas is still plagued by multiple issues, which limits the company’s prospects.
GE Power, one of the largest business segments of the company in terms of corporate revenues, has been a drag on earnings in the last few quarters as global demand waned with increasing popularity of renewable energy sources, overcapacity, lower utilization and fewer outages. Demand and price for the segment continue to spiral down. Industry experts opine that the acquisition of Alstom’s assets for $10 billion in 2015 compounded the problems for GE.
Further, GE’s upcoming earnings are likely to be hit by high overall expenses. We believe that persistently weak Power and Transportation margins will hurt first-quarter 2018 earnings, despite stringent cost-cutting and simplification initiatives.
Our proven model does not show that GE is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:
Zacks ESP: The company’s Earnings ESP is +7.14% as the Most Accurate estimate is 12 cents and the Zacks Consensus Estimate is 11 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: GE has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Allegheny Technologies Incorporated (ATI - Free Report) has an Earnings ESP of +9.38% and a Zacks Rank of 1. The company is expected to release quarterly numbers around Apr 24. You can see the complete list of today’s Zacks #1 Rank stocks here.
Century Aluminum Company (CENX - Free Report) , with an Earnings ESP of +29.41% and a Zacks Rank of 1, is slated to report results on Apr 24.
Watsco, Inc. (WSO - Free Report) has an Earnings ESP of +3.96% and a Zacks Rank of 2. The company is likely to release earnings on Apr 24.
Can Hackers Put Money INTO Your Portfolio?
Earlier this year, credit bureau Equifax announced a massive data breach affecting 2 out of every 3 Americans. The cybersecurity industry is expanding quickly in response to this and similar events. But some stocks are better investments than others.
Zacks has just released Cybersecurity! An Investor’s Guide to help Zacks.com readers make the most of the $170 billion per year investment opportunity created by hackers and other threats. It reveals 4 stocks worth looking into right away.
Download the new report now>>