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Bear of the Day: General Electric (GE)

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General Electric (GE - Free Report) reported Q1'22 earnings in late April where EPS topped estimates but revenues missed the Zacks Consensus.

General Electric reported mixed first-quarter 2022 results, wherein earnings surpassed the Zacks Consensus Estimate, but sales missed the same. The company’s quarterly earnings beat the consensus estimate by 20%. Sales lagged estimates by 2.4%.

The industrial conglomerate’s adjusted earnings were 24 cents per share in the first quarter, beating the Zacks Consensus Estimate of 20 cents. The bottom line matched the year-ago figure.

Revenue Details

In the quarter under review, General Electric’s consolidated revenues were $17,040 million, reflecting a year-over-year decline of 0.2%. The quarterly sales suffered from weakness in the Power and Renewable Energy segments. A gain in Healthcare and Aviation was a relief.

The company’s top line lagged the Zacks Consensus Estimate of $17,462 million.

The performance of Aviation, Healthcare, Renewable Energy and Power is discussed below:

Aviation revenues increased 12% year over year to $5,603 million and orders grew 31%. Organically, growth rates for revenues and orders were 12% and 32%, respectively. The high volume of shop visits significantly benefited Commercial Services revenues, partially offset by a decline in Commercial Engines revenues due to supply chain constraints.

Healthcare revenues in the reported quarter totaled $4,363 million, increasing 2% year over year. The segment’s orders grew 8% on an organic basis. The segment gained from a 3% increase in services organic sales while equipment revenues were flat. Supply shortages in the industry played spoilsport in the quarter.

Renewable Energy revenues totaled $2,871 million, down 12% year over year. Organically, the segment’s sales were down 10%. Its orders decreased 21% in the reported quarter. Weakness in Onshore Wind revenues and softness in Grid adversely impacted the segment’s performance. Growth in services revenues was a relief.

The Power segment’s revenues were down 11% year over year at $3,501 million. Organically, sales decreased 6%. However, the segment’s orders increased 14% year over year (or were up 19% organically). The segment suffered due to lower shipment volumes.

Margin Profile

In the quarter under review, General Electric’s cost of sales was down 0.7% year over year to $12,453 million. It represented 73% of the quarter’s revenues versus 73.4% in the year-ago quarter. Selling, general and administrative expenses decreased 26.2% to $3,651 million. It was 21.4% of the quarter’s revenues versus 17% in the year-ago quarter. Research and development expenses totaled $641 million, reflecting an increase of 14.3%. It represented 3.8% of the quarter’s revenues versus 3.3% in the year-ago quarter.

The company’s adjusted operating profit was $946 million, up 19% year over year. Margin in the quarter was 5.8%, up 90 basis points (bps).

On a reported basis, the Power segment recorded operating earnings of $63 million against a loss of $87 million in the year-ago quarter. Renewable Energy recorded a loss of $434 million compared with a loss of $234 million in first-quarter 2021. The Aviation segment’s earnings were $908 million versus $641 million in the year-ago quarter. The Healthcare segment’s profits decreased 23% to $538 million.

Interest and other financial charges decreased 19.6% year over year to $390 million.

Balance Sheet and Cash Flow

Exiting the first quarter of 2022, General Electric had cash and cash equivalents of $12.8 billion, down from $15.8 billion recorded at the end of the previous quarter. Borrowings were $28.6 billion, down from $30.8 billion at the end of the previous quarter.

Non-GAAP free cash outflow totaled $880 million in the first quarter compared with $3,361 million cash outflow recorded in the year-ago quarter.

2022 Outlook

For 2022, General Electric anticipates organic revenue growth in the high-single digits on a year-over-year basis. Adjusted organic profit margin is predicted to expand 150 bps from the previous year.

Free cash flow will likely be $5.5-$6.5 billion for the year. Adjusted earnings per share for 2022 are anticipated to be $2.80-$3.50 per share, suggesting a rise from $1.71 recorded in 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -42.86% due to these changes.

VGM Scores

At this time, GE has a poor Growth Score of F, a grade with the same score on the momentum front. However, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, GE has a Zacks Rank #5 (Strong Sell).


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