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>>> GE Stock Soared After Crushing Earnings Estimates. This Is Why.


Barron's

By Al Root

Oct. 30, 2019


https://www.barrons.com/articles/ge-stock-gains-as-messy-earnings-top-wall-street-estimates-51572432805?siteid=yhoof2&yptr=yahoo


There is a lot going on at General Electric these days. Third quarter earnings—reported Wednesday morning—demonstrate that. The company earned 15 cents a share from ongoing operations, easily beating Wall Street estimates of 12 cents a share. That’s good. But the company said it lost 15 cents a share when adding in all the one time expenses. That’s not.

Investors knew some charges were coming, but the report illustrate how hard it has been to turn around the iconic American manufacture.

“Our results reflect another quarter of progress in the transformation of GE,” said CEO Larry Culp in the company’s news release. “We are encouraged by our strong backlog, organic growth, margin expansion, and positive cash trajectory amidst global macro uncertainty.”

Importantly for investors, General Electric (ticker: GE) raised its free cash flow outlook for the year. Management expected full-year free cash flow to be about zero. Now the company the company thinks it can generate about $1 billion of free cash flow from industrial operations. The increased guidance comes even as the Boeing (BA) 737 MAX—which GE makes engines for—remains grounded and a cash flow headwind for both companies.

GE generate $650 million in free cash flow during the third quarter, above the $500 million Wall street had been looking for, according to Gordon Haskett analyst John Inch.

The free cash flow boost is likely what sent GE stock up $1.04 cents, or 11.5%, to $10.11 in Wednesday. For the year, GE shares are up about 39%, better than the 17% comparable gain of the Dow Jones Industrial Average.

Long term care insurance, Baker Hughes (BKR) stock sales, and goodwill generated the special charges.

Lower rates caused GE’s insurance liability to rise—something Culp telegraphed to investors in September. GE no longer owns a majority of Baker Hughes. Now GE’s Baker stockholdings are marked to market on a quarterly basis—as accounting regulations dictate. Energy stocks are down with energy prices. Again, not a surprise to Wall Street. Finally, GE wrote off some of its renewable power assets.

The power business is still tough. Power sales fell 14% year over year in the third quarter and is still losing money. The power industry continues to be buffeted by trends moving power generation away from coal. GE makes equipment for coal based power generation. Aviation sales, on the other hand, grew 8% year over year and profit margins were 21%.

Overall, the quarter should be enough for GE bulls who can point to progress on the turnaround. GE will host a conference call at 8 a.m. eastern to discuss results with analysts and investors.

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