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General Electric (GE) Q4 Earnings Meet Estimates, Sales Beat
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General Electric Company’s (GE - Free Report) fourth-quarter 2020 earnings matched estimates whereas sales surprise was a positive 3.1%.
Results reflected healthy free cash flow performance, orders growth in Power and Renewable Energy, and effective financial actions to reduce debts.
In the reported quarter, the industrial conglomerate’s adjusted earnings were 8 cents per share, matching the Zacks Consensus Estimate. However, the bottom line decreased 60% from the year-ago quarter’s 20 cents per share on weak sales generation, partially offset by lower costs and expenses.
In 2020, the company’s adjusted earnings were 1 cent, down from 61 cents in the previous year.
Revenue Details
In the quarter under review, General Electric’s consolidated revenues were $21,928 million, reflecting a year-over-year decline of 16.4%. Poor sales performance in both Industrial and GE Capital affected the quarterly results.
However, the company’s top line surpassed the Zacks Consensus Estimate of $21,275 million.
On a segmental basis, its Industrial revenues decreased 17.1% year over year to $20,271 million. Also, GE Capital’s revenues totaled $1,796 million, declining 14.3%.
For the Industrial segment, organic revenues in the quarter decreased 13.7% from the year-ago quarter to $20,051 million. Industrial orders declined 7% to $23.2 billion. Organically, orders were down 3%. Backlog at the end of the fourth quarter was $386.5 billion.
Performance of the Industrial segment’s components business is discussed below:
Aviation revenues decreased 34.6% year over year to $5,847 million and orders fell 41%. Organically, revenues and orders were down 34% and 40%, respectively. Fourth-quarter shipment of LEAP engines totaled 193, down from 227 in the year-ago quarter.
Healthcare revenues in the reported quarter totaled $4,823 million, decreasing 10.7% year over year. The segment’s orders dipped 15%. On an organic basis, revenues increased 6% and orders grew 1%.
Renewable Energy revenues totaled $4,442 million, down 6.4% year over year. Its orders increased 34% in the reported quarter. Organically, the segment’s sales were down 7%, while orders were up 32%.
The Power segment’s revenues dipped 0.3% year over year to $5,383 million. Organically, sales decreased 1% from the year-ago quarter. The segment’s orders increased 26% and grew 27% organically. Gas Power revenues decreased 2.9% to $3,769 million and that for the Power Portfolio was up 4.5% to $1,567 million.
In 2020, the company’s consolidated revenues were $79,619 million, down 16.4% year over year.
Margin Profile
In the quarter under review, General Electric’s cost of sales was down 10.6% year over year to $16,296 million. It represented 74.3% of the quarter’s revenues versus 69.5% in the year-ago quarter. Selling, general and administrative expenses in the quarter decreased 15.1% to $3,250 million. It was 14.8% of the quarter’s revenues versus 14.6% in the year-ago quarter. Research and development expenses totaled $635 million, suggesting year-over-year fall of 26.1%. It represented 2.9% of the quarter’s revenues versus 3.3% in the year-ago quarter.
The Industrial segment’s adjusted operating profit was $1,289 million, down 52.1% year over year. Margin in the quarter was 6.4% versus 11% in the fourth quarter of 2019.
On a reported basis, the Power segment recorded operating profit of $306 million, reflecting increase of 3% from the year-ago quarter. Renewable Energy recorded loss of $87 million compared with a loss of $227 million in fourth-quarter 2019. The Aviation segment’s earnings were $564 million, down 72.5% year over year. The Healthcare segment’s profits declined 16.6% to $949 million.
The GE Capital segment witnessed a loss of $151 million against earnings of $69 million in the year-ago quarter.
Interest and other financial charges decreased 22.8% to $737 million.
Balance Sheet and Cash Flow
Exiting the fourth quarter of 2020, General Electric had cash and cash equivalents of $36.6 billion, down 57.4% from $86 billion recorded at the end of the previous quarter. Borrowings were $70.3 billion, down 11.6% from $79.5 billion at the end of the third quarter.
The company noted that it reduced Industrial debts by $8.1 billion and GE Capital debt by $3.6 billion in the year-to-date period.
Non-GAAP free cash flow for GE Industrial totaled $4,367 million in the fourth quarter, up 12.4% year over year.
Restructuring
In June 2018, General Electric communicated plans to transform into a high-tech industrial company — focused on Aviation, Power and Renewable Energy.
In sync with its plans, the company completed the sale of its transportation business to Westinghouse Air Brake Technologies Corporation (WAB - Free Report) in first-quarter 2019. Further, General Electric completed the divestment of the BioPharma business to Danaher Corporation (DHR - Free Report) in March 2020.
Further, General Electric lost its controlling shareholding in Baker Hughes Company (BKR - Free Report) . In addition, the company started a program in the third quarter to fully dispose of its remaining stake in Baker Hughes. These actions will be valid in the coming three years. The divestment of this non-core possession will likely help General Electric to focus on core businesses, offer better uses of capital, deleveraging and others. Notably, proceeds of $0.4 billion from these actions were recorded by the company in October 2020 and another $0.7 billion is anticipated this month.
Efforts are on track to reduce the exposure to the GE Capital business. Asset disposition totaled $4 billion in 2020.
Outlook
For 2021, General Electric anticipates Industrial’s organic revenues to increase in low-single digit, while its adjusted organic margin is predicted to expand 250 basis points. Industrial free cash flow will likely be within the $2.5-$4.5 billion range.
Adjusted earnings per share for the year are anticipated to be 15-25 cents.
General Electric Company Price, Consensus and EPS Surprise
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General Electric (GE) Q4 Earnings Meet Estimates, Sales Beat
General Electric Company’s (GE - Free Report) fourth-quarter 2020 earnings matched estimates whereas sales surprise was a positive 3.1%.
Results reflected healthy free cash flow performance, orders growth in Power and Renewable Energy, and effective financial actions to reduce debts.
In the reported quarter, the industrial conglomerate’s adjusted earnings were 8 cents per share, matching the Zacks Consensus Estimate. However, the bottom line decreased 60% from the year-ago quarter’s 20 cents per share on weak sales generation, partially offset by lower costs and expenses.
In 2020, the company’s adjusted earnings were 1 cent, down from 61 cents in the previous year.
Revenue Details
In the quarter under review, General Electric’s consolidated revenues were $21,928 million, reflecting a year-over-year decline of 16.4%. Poor sales performance in both Industrial and GE Capital affected the quarterly results.
However, the company’s top line surpassed the Zacks Consensus Estimate of $21,275 million.
On a segmental basis, its Industrial revenues decreased 17.1% year over year to $20,271 million. Also, GE Capital’s revenues totaled $1,796 million, declining 14.3%.
For the Industrial segment, organic revenues in the quarter decreased 13.7% from the year-ago quarter to $20,051 million. Industrial orders declined 7% to $23.2 billion. Organically, orders were down 3%. Backlog at the end of the fourth quarter was $386.5 billion.
Performance of the Industrial segment’s components business is discussed below:
Aviation revenues decreased 34.6% year over year to $5,847 million and orders fell 41%. Organically, revenues and orders were down 34% and 40%, respectively. Fourth-quarter shipment of LEAP engines totaled 193, down from 227 in the year-ago quarter.
Healthcare revenues in the reported quarter totaled $4,823 million, decreasing 10.7% year over year. The segment’s orders dipped 15%. On an organic basis, revenues increased 6% and orders grew 1%.
Renewable Energy revenues totaled $4,442 million, down 6.4% year over year. Its orders increased 34% in the reported quarter. Organically, the segment’s sales were down 7%, while orders were up 32%.
The Power segment’s revenues dipped 0.3% year over year to $5,383 million. Organically, sales decreased 1% from the year-ago quarter. The segment’s orders increased 26% and grew 27% organically. Gas Power revenues decreased 2.9% to $3,769 million and that for the Power Portfolio was up 4.5% to $1,567 million.
In 2020, the company’s consolidated revenues were $79,619 million, down 16.4% year over year.
Margin Profile
In the quarter under review, General Electric’s cost of sales was down 10.6% year over year to $16,296 million. It represented 74.3% of the quarter’s revenues versus 69.5% in the year-ago quarter. Selling, general and administrative expenses in the quarter decreased 15.1% to $3,250 million. It was 14.8% of the quarter’s revenues versus 14.6% in the year-ago quarter. Research and development expenses totaled $635 million, suggesting year-over-year fall of 26.1%. It represented 2.9% of the quarter’s revenues versus 3.3% in the year-ago quarter.
The Industrial segment’s adjusted operating profit was $1,289 million, down 52.1% year over year. Margin in the quarter was 6.4% versus 11% in the fourth quarter of 2019.
On a reported basis, the Power segment recorded operating profit of $306 million, reflecting increase of 3% from the year-ago quarter. Renewable Energy recorded loss of $87 million compared with a loss of $227 million in fourth-quarter 2019. The Aviation segment’s earnings were $564 million, down 72.5% year over year. The Healthcare segment’s profits declined 16.6% to $949 million.
The GE Capital segment witnessed a loss of $151 million against earnings of $69 million in the year-ago quarter.
Interest and other financial charges decreased 22.8% to $737 million.
Balance Sheet and Cash Flow
Exiting the fourth quarter of 2020, General Electric had cash and cash equivalents of $36.6 billion, down 57.4% from $86 billion recorded at the end of the previous quarter. Borrowings were $70.3 billion, down 11.6% from $79.5 billion at the end of the third quarter.
The company noted that it reduced Industrial debts by $8.1 billion and GE Capital debt by $3.6 billion in the year-to-date period.
Non-GAAP free cash flow for GE Industrial totaled $4,367 million in the fourth quarter, up 12.4% year over year.
Restructuring
In June 2018, General Electric communicated plans to transform into a high-tech industrial company — focused on Aviation, Power and Renewable Energy.
In sync with its plans, the company completed the sale of its transportation business to Westinghouse Air Brake Technologies Corporation (WAB - Free Report) in first-quarter 2019. Further, General Electric completed the divestment of the BioPharma business to Danaher Corporation (DHR - Free Report) in March 2020.
Further, General Electric lost its controlling shareholding in Baker Hughes Company (BKR - Free Report) . In addition, the company started a program in the third quarter to fully dispose of its remaining stake in Baker Hughes. These actions will be valid in the coming three years. The divestment of this non-core possession will likely help General Electric to focus on core businesses, offer better uses of capital, deleveraging and others. Notably, proceeds of $0.4 billion from these actions were recorded by the company in October 2020 and another $0.7 billion is anticipated this month.
Efforts are on track to reduce the exposure to the GE Capital business. Asset disposition totaled $4 billion in 2020.
Outlook
For 2021, General Electric anticipates Industrial’s organic revenues to increase in low-single digit, while its adjusted organic margin is predicted to expand 250 basis points. Industrial free cash flow will likely be within the $2.5-$4.5 billion range.
Adjusted earnings per share for the year are anticipated to be 15-25 cents.
General Electric Company Price, Consensus and EPS Surprise
General Electric Company price-consensus-eps-surprise-chart | General Electric Company Quote
With a market capitalization of $97.3 billion, General Electric currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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