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GE (GE) Down 23.4% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for General Electric (GE - Free Report) . Shares have lost about 23.4% 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 the most recent earnings report in order to get a better handle on the important catalysts.

GE Misses on Q3 Earnings, Announces Growth Initiatives 

General Electric reported weaker-than-expected results for third-quarter 2018. Concurrent to the earnings release, the company also announced certain immediate actions in a bid to boost its near-term competency and strengthen the balance sheet.

Quarterly adjusted earnings came in at 14 cents per share, 33.3% lower than the year-ago tally. The bottom line also missed the Zacks Consensus Estimate of 21 cents.

Revenues Hurt by Power Segment Troubles

Aggregate revenues in the reported quarter came in at $29,573 billion, down 4% year over year. The top-line figure also missed the Zacks Consensus Estimate of $29,880 billion.

On a segmental basis, the company’s Industrial revenues dropped 4.8% year over year to $27,785 million. However, the segment’s organic revenues inched up 1% year over year to $28,057 million.

Performance of the Industrial segment’s components businesses are discussed below:

Oil & Gas revenues increased nearly 7% year over year to $5,670 million, backed by benefits secured from Baker Hughes, a GE company (BHGE). Synergistic gains from Baker Hughes in the quarter amounted to $147 million.

Aviation revenues were up 12% to $7,480 million, on the back of 35% growth in orders, driven by the rising popularity of LEAP engines and key GEnx wins.

Healthcare revenues in the reported quarter totaled $4,707 million, flat year over year.

Renewable Energy revenues improved 15% to $2,873 million, but its orders fell 3% year over year. Quarterly revenues improved on the back of increased onshore wind-equipment sales.

However, the Lighting segment’s revenues declined 18% year over year to $385 million, while its orders slipped 6% in the reported quarter.

Transportation revenues dipped 2% year over year to $932 million, while its orders surged 114.8% year over year on higher 603 locomotive orders. General Electric anticipates to successfully divest its transportation business to Wabtec Corporation by early 2019.

Power segment revenues plunged 33% year over year to $5,739 million, while orders were down 18% year over year. The company noted that the segment’s performance was hurt by the persistent execution and market challenges.

GE Capital’s revenues in the third quarter totaled $2,473 million, up 3% year over year.

Margins Suffer

In the quarter under review, the Industrial segment’s adjusted operating profit decreased 23% year over year to $2,213 million, while margins shrunk 180 basis points year over year. Results suffered due to a decline in Power and Renewable Energy, partially offset by improvement in profits in Transportation, Aviation, Healthcare and Lighting.

GE Capital segment generated profit of $19 million versus $24 million witnessed in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the third quarter of 2018, General Electric had cash and cash equivalents of $61.7 billion, down from $82.7 billion recorded as of Dec 31, 2017.

Adjusted free cash flow from GE Industrial totaled $1.1 billion, down 5% from the year-earlier quarter.

GE’s Latest Moves

General Electric slashed its dividend from 12 cents per share to a penny (effective from the next dividend declaration). The company noted this strategic move will enable it to hold around $3.9 billion cash on an annualized basis compared to the previous payout level.

The company also mentioned that it will reorganize the Power segment in order to improve its performance, over the long run. In line with this, General Electric also intends to consolidate GE Power’s headquarters structure to ensure these units can best serve their customers.

General Electric expects that these moves will significantly improve its revenues and profitability, going forward.

Outlook

In a bid to become a high-tech industrial company, General Electric rolled out a business portfolio-restructuring program this June. In sync with this, the behemoth intends to become more competent by focusing on just three core segments — power, aviation and renewable energy — and gradually exit all other businesses.

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 -46.07% due to these changes.

VGM Scores

At this time, GE has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was 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 D. 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. 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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