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Investors Business Daily
Investors Business Daily

GE Earnings: A Pared-Down GE Sees Strong Cash Flow, Aerospace Demand

General Electric reported a square fourth-quarter beat early Tuesday, as commercial aviation continues to recover while global recession worries grow. GE stock gave up Tuesday's early gains, turning lower after a strong session on Monday.

The GE earnings report is the industrial giant's first since the early January spinoff of its health-care business. Along with Q4 earnings, investors looked for an update on the planned separation of its power and renewable energy businesses in early 2024.

That separation will allow the "new GE" to emerge as an aviation-focused company next year.

The company's 2023 outlook is key. Both the commercial and defense aviation markets are seen poised for growth after recent challenges that stemmed, in large part, from coronavirus pandemic-related disruptions.

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General Electric Earnings

Estimates: Analysts polled by FactSet expect GE earnings to increase 60% year over year, to $1.15 per share. Revenue is seen rebounding 6% to $21.558 billion.

Wall Street predicts free cash flow (FCF) of $4.224 billion, up from both the prior, third, quarter and a year ago. GE's cash flows are typically strongest in the final quarter.

Results: GE reported diluted EPS of $1.99, a 176% leap. Revenue climbed 7% to $21.786 billion, including a 25% jump in aerospace segment revenue. Power equipment revenue gained 8%, to $5.03 billion, while profit from the power unit soared 124%, to $692 million. Aerospace profit gained 17%, to $1.43 billion.

Overall free cash flow came in at $4.8 billion for the year, with $4.3 billion of that in the fourth quarter. Cash and cash equivalents rose more than 9%, to $17.262 billion.

A $6.4 billion debt tender during the fourth quarter quarter put GE's debt reduction at $11 billion since the spinoff, and down more than $100 billion since 2018. The company bought about 4.2 million shares during the fourth quarter. Over the course of the year, GE spent about $1 billion to repurchase approximately 13.3 million shares.

Outlook: GE's projection called for revenue growth in the high single digits, adjusted EPS of $1.60 to $2 a share and free cash flow between $3.4 billion and $4.2 billion. the company guides to revenue growth in the "mid- to high-teens" in its aerospace division, with operating profit between $5.3 billion and $5.7 billion. The outlook does not include any contribution from the spun-off healthcare unit.

GE Stock, GEHC Stock

Shares of General Electric rose 0.6% to 80.27 in afternoon trade on the stock market today. GE stock is up roughly two-thirds since September, climbing the right side of a deep, 14-month-long base. Shares are 14% below the base's left-side high. But GE stock has a small handle on a weekly chart, offering an 81.28 buy point.

The relative strength line for GE stock is hitting its highest level since mid-2021. A Relative Strength Rating of 95, out of a best-possible 99, means that GE stock has outperformed 95% of all stocks in IBD's database over the past year.

The health care spinoff, GE HealthCare Technologies, traded 0.8% higher Tuesday, after rallying 4.1% Monday. It is up more than 30% since its Jan. 4 Nasdaq debut.

General Electric is set to emerge as an aviation pure-play in early 2024. The once-storied conglomerate shed a series of businesses over the past several years, amid a collapse in earnings and cash generation.

In aviation, General Electric supplies plane makers Boeing and Airbus with jet engines and systems.

Commercial aviation continues to recover after the pandemic, with Delta Air Lines and American Airlines recently boosting guidance on robust travel demand.

GE Aviation also supplies the military. The defense business weighed on GE earnings in the third quarter.

When GE reports Q4 results Jan. 24, investors will watch for any falloff in demand amid a weakening macro economy, and growing recession fears.

For multinationals like GE, rate hikes by global central banks are a headwind.

These companies also face myriad other challenges tied to inflation, supply chain disruptions, European market slowing, the protracted Russia-Ukraine war, semiconductor shortages, and a strong U.S. dollar. But many of those concerns are fading, with inflation cooling, supply chain issues waning, Europe steadying and the U.S. dollar tumbling.

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