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Monday, March 4, 2024

GE Reports Stellar Earnings Ahead Of Breaking Into Two Companies

GE Reports Stellar Earnings Ahead Of Breaking Into Two Companies

Key takeaways

  • General Electric reported better-than-expected earnings and sales, raising its full-year guidance
  • The company is set to split into two businesses by Q2 next year
  • GE’s share price rose 5.3% at the earnings beat

Talk about an earnings beat. General Electric’s third-quarter earnings came in above expectations almost across the board, in excellent timing ahead of the company splitting into two separate businesses. Earnings, profit and revenue were all up, and the company’s full-year guidance was raised in return.

It wasn’t all plain sailing, though, with the company cutting growth forecasts for jet engine deliveries this year as supply chain woes still hit the sector. Wall Street didn’t mind, though, with GE’s stock price climbing higher on Tuesday.

Here’s the lowdown on the GE earnings, the stock market reaction and how the GE beat is a sign of the U.S.’ continued industrial prowess.

What happened with GE’s earnings?

GE investors had a good day this week. The company posted a strong third quarter, with adjusted earnings per share of 82 cents from sales of $16.5 billion. The consensus estimate from analysts was 56 cents on sales of $15.5 billion, a big leap upward for GE.

As for future guidance, it was more good news as GE raised its full-year earnings guidance for the second quarter in a row. The company now expects a range of $2.55 to $2.65 a share, a bump from last quarter’s previous guidance of $2.10 to $2.30. GE also raised its free cash flow estimates again to $4.9 billion, another jump from the $4.4 billion prediction in Q2.

Of the earnings report, GE CEO Larry Culp said that the company had “delivered another quarter of very strong results with double-digit growth in revenue, profit, and cash” and is “more excited than ever about our path ahead”.

Smooth sailing ahead for the GE spinoff

It’s all good news ahead of the company’s planned spinoff of GE’s renewable power and gas power generation business, GE Vernova, which is anticipated to be completed by Q2 next year. That’s slightly later than the previous timescale issued by GE, but the conglomerate announced some leadership appointments back in August, which should give investors hope.

After the spinoff is completed, GE will become GE Aerospace. GE saw aerospace orders worth $9.8 billion for this sector in the third quarter, above the $8.4 billion anticipated. However, the company has cut down its growth forecast for its LEAP jet engine deliveries for the remainder of 2023 and into next year as well, citing supply chain snags as demand booms.

GE is now aiming for a 20% to 25% year-on-year increase in deliveries, according to Culp, instead of 40% to 45% – that’s quite the downgrade. GE’s renewable power division is still making a loss as well, posting an operating profit of minus 7.6% – but still an improvement from the negative 26% from the same time last year.

What was the stock market reaction?

Wall Street was more than happy with what it saw – and the stakes were high, given GE’s share price has soared over 85% since the start of the year. GE stock climbed another 5.3% on Tuesday, compared to the S&P 500 and Dow Jones Industrial Average both gaining 0.5%.

GE has certainly outshined its competitors in 2023. Since the start of the year, Schneider Electric’s stock has risen 5.21%, and Siemens is currently down over 1%. Boeing has seen a 6.7% drop in its share price, and Lockheed Martin has fallen by 7.7%.

U.S. industrial output bucks the trend

GE’s decent earnings report is a good sign for the wider sector, which has seen the U.S. pull ahead on the world stage with its industrial output. Production at U.S. factories rose by more than anticipated in September, with manufacturing output increasing by 0.4%, according to the Fed.

The S&P Global also announced its flash U.S. Composite Purchasing Managers Index, tracking the manufacturing and service sectors, rose to a score of 51.0 in October, the highest level since July. The survey’s manufacturing PMI also rose to 50, the highest score since April.

Later this week, we’ll also get the Commerce Department’s scorecard for economic activity in Q3, which analysts predict will show that U.S. GDP growth was the highest in two years between July and September.

It’s all giving hope that the U.S. economy will achieve the fabled soft landing after the Fed raised interest rates to their highest level in 22 years, with a target of 5.25% to 5.5%.

The bottom line

GE’s earnings beat is good news all around, despite a couple of concerns about renewable energy profitability and aerospace deliveries. The company needed to pass a high bar to keep Wall Street happy – plus it bodes well for the eventual spinoff, even if it is happening slightly later than planned.

The earnings beat also helps to feed into the idea that the U.S. economy is still resilient and the manufacturing sector is recovering from high inflation, high interest rates and supply chain woes – which is good news for the Fed ahead of its meeting in November.

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