reported second quarter earnings of 17 cents a share on sales of $ 28.8 billion. Earnings were 5 cents better than Wall Street was expecting. Whats more, the company raised full year 2019 earnings and its cash-flow guidance.
As often the case, however, with General Electric (ticker GE) results are complicated — there are lots of moving parts. The 17-cent figure includes some non-recurring charges and tax benefits excluded.
Still, the results look better than expected and what management said about cash flow in the quarterly news release will matter far more to the stock than reported earnings. Management now expects the company to not burn through any cash (taking the midpoint of 2019 guidance). Better than the $ 0 to $ 2 billion burn predicted when GE reported its first-quarter numbers.
“Due to improvements in Power, lower restructuring and interest, higher earnings, and better visibility at half, we are raising our full-year outlook for the Industrial segment organic revenues, adjusted [earnings per share]and Industrial free cash flows, Said CEO Larry Culp in the company's news release.
The back story. Cash is more important than investor earnings because GE still qualifies as a turnaround situation. New CEO Culp is selling assets to reduce debt as well as cutting costs to return the troubled power division to profitability.
What's new. Orders and sales in the power division were down 22% and 25%, respectively, from a year ago. Things are still tough. GE is cutting costs to position the business for a smaller future; reported costs dropped 10% year over year.
(BA) was mentioned in the company's news release, but only briefly. On the conference call, there was more news: Management referred to comments made at the Paris Air Show regarding the GE9X engines built for the newest 777 planes. The GE9X program is running into additional costs in connection with a parts problem mentioned by Boeing on its conference call.
The continued grounding of Boeing's 737 MAX jet will reduce GE's cash flow by $ 400 million in both the third and fourth quarters. MAX Delays Can Hit Aerospace Suppliers; GE makes the Leap engines that power the MAX jet. “Remember, the Leap volume is planned to ramp into the second half and really discuss what [the cash flow guidance] relates to,” said Culp. “And then in terms of the overall [cash flow] outlook, certainly, we are monitoring that. It is embedded in the framework. ”
GE Capital earnings dipped only slightly from the first quarter of 2019.
Looking ahead: The results look like a win for GE investors. Barron expected the stock to have a good day relative to the overall market, but Wall Street is still digesting the numbers.
Bulls and bears seem entrenched in their positions. JPMorgan analyst Stephen Tusa called the earnings "low quality," and RBC analyst Deane Dray wrote "GE delivered a number of headline positives in [the second quarter] that we expect to be well received by investors. ”Dray rates GE stock Buy, while Tusa rates it at Sell.
His downbeat view seems to be winning out. The stock was down about 4% at $ 10.10 in mid morning.
As of Tuesday's close, GE stock was up almost 45% a year to date, far better than the 18% return of the
Dow Jones Industrial Average.
Still, the stock is down almost 17% over the last year, worse than the 7% gain of the Dow over the same span.
GE also announced this morning, in a separate news release, that CFO Jamie Miller will “transition from her role.” Miller has been with GE for 11 years.
Write to Al Root at firstname.lastname@example.org