General Electric shares popped up Tuesday after General Electric (GE) smashed second-quarter earnings estimates, driven by the jet-engine unit. Wall Street cheered the results of “excellence” in this business as the industrial giant looks to emerge in 2024 as a company focused on aviation.
Despite outperforming significant second-quarter earnings, General Electric only confirmed full-year EPS guidance and lowered its 2022 free cash flow forecast by $1 billion due to pressures on working capital.
“We are working to improve delivery, price and cost performance through decentralization (strategy),” GE CEO Larry Kolb said in a July 26 earnings statement. “Despite this progress, there is still a lot of uncertainty about the external pressures companies are facing at this moment.”
Surprising gains from General Electric in the second quarter
In the second quarter, GE’s earnings nearly doubled, to 78 cents a share. Revenue rebounded nearly 6% to $17.88 billion. Analysts expected earnings per share of 37 cents, down 6.5% year-over-year, and revenue of $17.457 billion.
Free cash flow reached $162 million, uniting views to burn more than $800 million in cash. Orders grew 4%, with growth across services and equipment. Margins expanded by 380 basis points.
Among GE’s industrial segments, revenue grew 27% in aviation, plus 4% in both healthcare and energy. It fell 20% in the renewable energy sector, which was also the only business sector to post a loss in the second quarter.
“Space was a key driver of our performance this quarter as the industry recovery builds momentum,” CEO Kolb said in a press release. In the second quarter, flight orders jumped 26% year over year. Both the commercial and military jet engine business grew due to a 47% increase in demand for services, benefiting from higher store visits and parts sales. But commercial shipments of engines fell as supply disruptions hit deliveries.
On Tuesday, GE reaffirmed the benefits stemming from its tax-free healthcare business in early 2023 and its energy business in early 2024, after which it will emerge as an aviation-focused company.
GE maintains expectations
GE reiterated that it continues to trend toward the lower end of its 2022 forecast. This includes guidance for high single-digit revenue growth (20% for aviation) and adjusted earnings per share from $2.80 to $3.50. But GE has scaled back its guidance, expecting $1 billion of that flow to be pushed beyond 2022 due to supply chain challenges and pressures on working capital.
RBC Capital Markets analyst Deane Dray wrote in a note Tuesday that EPS guidance for 2022 — after a strong second quarter — indicates that the second half of the year will be weaker than expected. “However, we believe there is an appropriate amount of conservatism,” he added.
Dray noted that aviation was “a standout position” amid broad-based strength for the top line in the second quarter. He added that free cash flow was another “bright spot” and he expects $1 billion to be recovered eventually.
The analyst rated GE stock as an outperformer, with a price target of $94.
GE stock reclaimed the main level
Shares rose 6.5% to 72.79 on Tuesday stock market trading. GE topped the 50-day moving average for the first time since April and is poised to extend its winning streak to eight sessions. GE stock It reached its lowest level in 20 months earlier in July.
The line relative force As for General Electric’s stock, it started to rise after the recession. The rising RS line means that the stock is outperforming against the S&P 500.
GE Aviation holds the key
Likes Raytheon Technologies (RTX), General Electric plans to focus on its higher-growth aerospace business, leaving its storied conglomerate behind. General Electric plans to complete its major breakup in early 2024.
Raytheon and 15:00 (MMM) also reported early Tuesday. Raytheon stock fell 3.1% Tuesday after a Q2 revenue miss. 3M stock jumped 5.2% after its second-quarter win. Among his other peers, Roper Technologies (Royal Oman Police), which beat second-quarter earnings views on July 22, down 0.7%.
GE and Raytheon make jet engines for aircraft makers like Trappers Boeing (BA), which secured a number of new aircraft orders at the Farnborough International Air Show last week. Boeing reports early Wednesday.
On July 18, GE confirmed that the historic split was on track, choosing the three public companies scheduled to appear in 2023-24: GE Aviation, GE HealthCare and GE Vernova (which includes energy and renewable energy companies). General Electric first announced the big meltdown last fall, after years of costly restructuring efforts. Investors also fell in love with the conglomerate business model.
Also on July 18, the industrial giant announced that Delta Airlines (DAQatar Airways has selected its Leap-1B engines to power its Boeing 737-10 fleet.
Since the beginning of the year, GE stock is down 23%. Raytheon stock rose 6.4%.
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