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General Electric (GE) Down 9.6% Since Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for General Electric Company (GE - Free Report) . Shares have lost about 9.6% in that time frame, underperforming the market.
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 of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
GE Misses on Both Q4 Earnings & Revenues, Offers 2018 View
General Electric reported relatively modest fourth-quarter 2017 results on the back of some key initiatives. GAAP loss from continuing operations for the reported quarter were $9,863 million or loss of $1.15 a share compared with net earnings of $3,659 million or 39 cents a share in the year-ago quarter. The significant year-over-year decline in GAAP earnings was primarily attributable to charges related to legacy insurance businesses to the tune of $1.49 per share. Excluding these charges, industrial and other verticals operating earnings were 27 cents per share, which missed the Zacks Consensus Estimate of 28 cents.
For full year 2017, the company reported industrial and other verticals operating earnings (excluding fourth-quarter charges) of $1.05 per share compared with $1.49 in 2016.
Revenues
Total consolidated revenue for the reported quarter decreased 5% year over year to $31,402 million and missed the Zacks Consensus Estimate of $32,873 million. While the Industrial segment revenue improved 3% year over year to $32,214 million, GE Capital revenues declined 42% to $1,545 million. Organic revenues for the Industrial segment decreased 6% for the quarter to $28,712 million. For full year 2017, the company reported revenues of $122,092 million compared with $123,693 million in 2016.
Total orders for the quarter for the Industrial segment increased 3% year over year to $35 billion, with significant order improvements from the Oil & Gas segment (up 73%) and Transportation (up 56%), partially offset by decline in Power (down 25%). Total backlog of equipment and services at quarter-end was $341.3 billion, up 6% year over year.
Revenue by Segment
Revenues from Lighting decreased 7% to $546 million with lower revenues from the legacy lighting businesses, while Oil & Gas revenues were up 69% year over year to $5,756 million due to improved revenue contribution from Baker Hughes. Revenues from the Aviation segment remained flat at $7,222 million. Transportation revenues declined 20% year over year to $993 million on lower equipment volume.
Power segment revenue was down 15% year over year to $9,421 million with lower demand for turbines, while revenues from the Healthcare segment improved 6% to $5,402 million due to solid volume and cost productivity. Revenues from the Renewable Energy segment were up 15% year over year to $2,875 million largely due to higher services revenue. Revenues from the GE Capital segment decreased 42% year over year to $1,545 million.
Margins, Balance Sheet and Cash Flow
Despite stringent cost-cutting and simplification initiatives, General Electric recorded lower margins in the reported quarter due to headwinds in the Power and Transportation segments. Industrial segment operating profit decreased 39% year over year to $3,542 million, with a decline in profits in Power (down 88%) and Transportation (down 40%), partially offset by a significant rise in profits in Renewable Energy (up 25%) and Healthcare (up 13%).
GE Power is the largest business segment of the company in terms of corporate revenues. However, the business 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. Industry experts opine that the acquisition of Alstom’s assets for $10 billion in 2015 further compounded the problems for General Electric, as it increased the employee count by approximately 65,000 with the addition of several field offices and manufacturing sites across the world. This led to higher operating costs and contracted margins.
General Electric recorded total segment loss of $3,028 million compared with profit of $6,057 million in the year-ago quarter. Non-GAAP operating margin for the Industrial segment declined to 11.2% from 16.8% in the prior-year period.
Cash generated from operating industrial activities for the quarter (excluding deal taxes and pension plan) totaled $7,757 million, down 6% year over year. Cash and marketable securities at year-end 2017 aggregated $82 billion compared with $92.4 billion in the year-ago period.
Outlook
General Electric offered its guidance for 2018. The company currently anticipates operating earnings to be within $1.00–$1.07, with growth momentum in Aviation and Healthcare and continued challenges in the Power segment. The company expects a gradual improvement in earnings with structural changes, simplification and cost-cutting initiatives.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 40.5% due to these changes.
At this time, GE has a poor Growth Score of F, however its Momentum is doing a lot better with a B. However, the stock was also allocated a grade of D on the value side, putting it in the bottom 40% 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.
The company's stock is suitable solely for momentum investors based on our style scores.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions also indicates a downward shift. It's no surprise GE has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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General Electric (GE) Down 9.6% Since Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for General Electric Company (GE - Free Report) . Shares have lost about 9.6% in that time frame, underperforming the market.
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 of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
GE Misses on Both Q4 Earnings & Revenues, Offers 2018 View
General Electric reported relatively modest fourth-quarter 2017 results on the back of some key initiatives. GAAP loss from continuing operations for the reported quarter were $9,863 million or loss of $1.15 a share compared with net earnings of $3,659 million or 39 cents a share in the year-ago quarter. The significant year-over-year decline in GAAP earnings was primarily attributable to charges related to legacy insurance businesses to the tune of $1.49 per share. Excluding these charges, industrial and other verticals operating earnings were 27 cents per share, which missed the Zacks Consensus Estimate of 28 cents.
For full year 2017, the company reported industrial and other verticals operating earnings (excluding fourth-quarter charges) of $1.05 per share compared with $1.49 in 2016.
Revenues
Total consolidated revenue for the reported quarter decreased 5% year over year to $31,402 million and missed the Zacks Consensus Estimate of $32,873 million. While the Industrial segment revenue improved 3% year over year to $32,214 million, GE Capital revenues declined 42% to $1,545 million. Organic revenues for the Industrial segment decreased 6% for the quarter to $28,712 million. For full year 2017, the company reported revenues of $122,092 million compared with $123,693 million in 2016.
Total orders for the quarter for the Industrial segment increased 3% year over year to $35 billion, with significant order improvements from the Oil & Gas segment (up 73%) and Transportation (up 56%), partially offset by decline in Power (down 25%). Total backlog of equipment and services at quarter-end was $341.3 billion, up 6% year over year.
Revenue by Segment
Revenues from Lighting decreased 7% to $546 million with lower revenues from the legacy lighting businesses, while Oil & Gas revenues were up 69% year over year to $5,756 million due to improved revenue contribution from Baker Hughes. Revenues from the Aviation segment remained flat at $7,222 million. Transportation revenues declined 20% year over year to $993 million on lower equipment volume.
Power segment revenue was down 15% year over year to $9,421 million with lower demand for turbines, while revenues from the Healthcare segment improved 6% to $5,402 million due to solid volume and cost productivity. Revenues from the Renewable Energy segment were up 15% year over year to $2,875 million largely due to higher services revenue. Revenues from the GE Capital segment decreased 42% year over year to $1,545 million.
Margins, Balance Sheet and Cash Flow
Despite stringent cost-cutting and simplification initiatives, General Electric recorded lower margins in the reported quarter due to headwinds in the Power and Transportation segments. Industrial segment operating profit decreased 39% year over year to $3,542 million, with a decline in profits in Power (down 88%) and Transportation (down 40%), partially offset by a significant rise in profits in Renewable Energy (up 25%) and Healthcare (up 13%).
GE Power is the largest business segment of the company in terms of corporate revenues. However, the business 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. Industry experts opine that the acquisition of Alstom’s assets for $10 billion in 2015 further compounded the problems for General Electric, as it increased the employee count by approximately 65,000 with the addition of several field offices and manufacturing sites across the world. This led to higher operating costs and contracted margins.
General Electric recorded total segment loss of $3,028 million compared with profit of $6,057 million in the year-ago quarter. Non-GAAP operating margin for the Industrial segment declined to 11.2% from 16.8% in the prior-year period.
Cash generated from operating industrial activities for the quarter (excluding deal taxes and pension plan) totaled $7,757 million, down 6% year over year. Cash and marketable securities at year-end 2017 aggregated $82 billion compared with $92.4 billion in the year-ago period.
Outlook
General Electric offered its guidance for 2018. The company currently anticipates operating earnings to be within $1.00–$1.07, with growth momentum in Aviation and Healthcare and continued challenges in the Power segment. The company expects a gradual improvement in earnings with structural changes, simplification and cost-cutting initiatives.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 40.5% due to these changes.
General Electric Company Price and Consensus
General Electric Company Price and Consensus | General Electric Company Quote
VGM Scores
At this time, GE has a poor Growth Score of F, however its Momentum is doing a lot better with a B. However, the stock was also allocated a grade of D on the value side, putting it in the bottom 40% 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.
The company's stock is suitable solely for momentum investors based on our style scores.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions also indicates a downward shift. It's no surprise GE has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.