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GE (GE) Down 1.6% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for General Electric (GE - Free Report) . Shares have lost about 1.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is GE due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

General Electric Tops Q3 Earnings Estimates, Ups '21 View

General Electric reported mixed results for the third quarter of 2021. Its earnings surpassed estimates by 39%, while sales lagged the same by 3.6%.

In the reported quarter, the industrial conglomerate’s adjusted earnings were 57 cents per share, exceeding the Zacks Consensus Estimate of 41 cents. Also, the bottom line improved 50% from the year-ago figure of 38 cents.

Revenue Details

In the quarter under review, General Electric’s consolidated revenues were $18,429 million, reflecting a year-over-year decline of 0.5%. The quarterly sales suffered from weakness in the Healthcare and Renewable Energy segments, partially offset by gains in Aviation.

The company’s top line lagged the Zacks Consensus Estimate of $19,126 million.

On a segmental basis, its Industrial revenues decreased 1% year over year to $17,821 million. Also, GE Capital’s revenues totaled $734 million, decreasing 3.2% year over year.

For the Industrial segment, organic revenues in the quarter decreased 1% from the year-ago quarter to $17,636 million. Industrial orders expanded 42% year over year to $22.1 billion. Organically, orders were up 42%.

The performance of the Industrial segment’s components business is discussed below:

Aviation revenues increased 10% year over year to $5,398 million and orders grew 69%. Organically, growth rates for revenues and orders were 10% and 70%, respectively. The segment benefited from a 16.7% year-over-year increase in Commercial Engines & Services revenues, partially offset by a 2.6% decline in Military and a 1% decrease in Systems & Other revenues.

Healthcare revenues in the reported quarter totaled $4,339 million, decreasing 5% year over year. The segment’s orders grew 21%. On an organic basis, revenues decreased 6% and orders grew 19%.

The segment suffered from a 6.2% decrease in Healthcare Systems sales, partially offset by 5.6% growth in Pharmaceutical Diagnostics revenues.

Renewable Energy revenues totaled $4,208 million, down 7% year over year. Its orders increased 65% in the reported quarter. Organically, the segment’s sales were down 9% year over year, while orders grew 65%.

The segment’s Onshore Wind sales decreased 7.8% year over year, while Grid Solutions equipment and services revenues were down 18.9%. Hydro revenues increased 18.8% year over year and Offshore Wind and Hybrid Solutions revenues expanded 66.1% year over year.

The Power segment’s revenues were flat year over year at $4,026 million. Organically, sales decreased 1% from the year-ago quarter. The segment’s orders increased 8% year over year (or grew 6% organically).

Gas Power revenues decreased 2.7% to $2,861 million, while that for Steam Power grew 2.7%, and that for Power Conversion, Nuclear and other expanded 19%.

Margin Profile

In the quarter under review, General Electric’s cost of sales was down 13.5% year over year to $9,127 million. It represented 49.5% of the quarter’s revenues versus 57% in the year-ago quarter. Selling, general and administrative expenses in the quarter decreased 14.6% to $2,747 million. It was 14.9% of the quarter’s revenues versus 17.4% in the year-ago quarter.

Research and development expenses totaled $627 million, reflecting a year-over-year increase of 5.4%. It represented 3.4% of the quarter’s revenues versus 3.2% in the year-ago quarter.

The Industrial segment’s adjusted operating profit was $1,337 million, up 55% year over year. Margin in the quarter was 7.5%, up 270 basis points year over year.

On a reported basis, the Power segment recorded operating earnings of $204 million, reflecting an improvement of 38% from the year-ago quarter. Renewable Energy recorded a loss of $151 million compared with a loss of $51 million in third-quarter 2020. The Aviation segment’s earnings were $846 million versus $350 million in the year-ago quarter. The Healthcare segment’s profits decreased 5% to $704 million.

The GE Capital segment witnessed a loss of $142 million compared with a loss of $29 million in the year-ago quarter.

Interest and other financial charges decreased 12.2% year over year to $462 million.

Balance Sheet and Cash Flow

Exiting the third quarter of 2021, General Electric had cash and cash equivalents of $25 billion, up 11.1% from $22.5 billion recorded at the end of the previous quarter. Borrowings were $57.4 billion, down 3% from $59.2 billion at the end of the second quarter.

Non-GAAP free cash flow for GE Industrial totaled $1,727 million in the third quarter compared with $514 million in the year-ago quarter.

Efforts are on track to reduce the exposure to the GE Capital business. Asset disposition totaled $11.4 billion in the first three quarters of 2021.

Outlook

For 2021, the company anticipates Industrial’s organic revenues to be flat year over year compared with low-single-digit growth mentioned previously.

Its adjusted organic margin is predicted to expand 350 bps, up from 250 bps stated earlier. Industrial free cash flow will likely be $3.75-$4.75 billion, as compared with $3.5-$5 billion mentioned previously.

Adjusted earnings per share for the year are anticipated to be $1.80-$2.10 per share, higher than $1.20-$2.00 per share mentioned previously.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, GE has a strong Growth Score of A, 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 A. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.


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