Shares of General Electric Co. rallied Tuesday, after the industrial conglomerate beat profit and revenue expectations for the second quarter and swung to surprise positive cash flow, as aviation remained the biggest problem area with a revenue miss but saw improving fundamentals.
GE said it was hurt by the supply chain issues that have been weighing on companies in many sectors, particularly in its military business, but it has managed the issues so the impact on revenue was “modest.”
And regarding inflation, GE said it is seeing pressure, particularly in its Aviation and Renewables business segments, and expects pressure to increase in the second half of 2021 and into 2022.
But given measures the company has taken to mitigate the pressure, including “cost countermeasures” and “price increases,” Chief Financial Officer Caroline Dybeck Happe said she expects “the net inflation impact to be limited.”
Don’t miss: GE stock extends bounce ahead of earnings.
Earlier Tuesday, GE reported a second-quarter net loss that narrowed to $1.19 billion, or 14 cents a share, from $2.18 billion, or 26 cents a share, in the same period a year ago. Excluding nonrecurring items, such as goodwill impairments, restructuring charges and changes of impacts from equity investments, adjusted earnings per share came to 5 cents, compared with a per-share loss of 14 cents a year ago, and above the FactSet EPS consensus of 3 cents.
Revenue grew 8.8% to $18.28 billion, topping the FactSet consensus of $18.14 billion.
Industrial free cash flow (FCF) swung to a positive $388 million from negative $2.07 billion a year ago, to beat the FactSet consensus of negative $338.3 million.
“The majority of this improvement was driven (by) cash earnings, with all segments growing earnings,” Dybeck Happe said. according to a FactSet transcript of the post-earnings conference call with analysts.
The big beat prompted GE to raise its 2021 FCF guidance range to positive $3.5 billion to $5. 0 billion from $2.5 billion to $4.5 billion.
Within GE’s business segments, revenue for Aviation rose 10% to $4.84 billion, but was below the FactSet consensus of $5.16 billion; Healthcare revenue grew 14% to $4.85 billion, well above expectations of $4.30 billion; Power revenue rose 3% to $4.30 billion to top versus expectations of $4.09 billion and Renewable Energy revenue jumped 16% to $4.05 billion to exceed expectations of $3.87 billion.
Compared with pre-pandemic levels, Renewable revenue topped second-quarter 2019 revenue, while Healthcare and Power came up a little short and Aviation revenue was roughly 39% below.
Focusing on Aviation, Chief Executive Larry Culp said market fundamentals are improving as the industry is showing early signs of a recovery. And with second-quarter segment margin improving to positive 3.6% from negative 15.7%, Culp said he expects “margins to expand for the rest of 2021.”
“I’m confident in our path to recovery in Aviation,” Culp said.
GE’s stock has outperformed its industrial peers and the broader market this year. It has climbed 20.3% year to date, while the SPDR Industrial Select Sector exchange-traded fund
has gained 16.5% and the S&P 500 index
has advanced 16.9%.
The following are some other items in GE’s second-quarter results that may be of interest to investors:
The 1-for-8 reverse stock split announced in March is expected to take effect as of the market open on Aug. 2. The idea of the split was to bring the number of shares outstanding down to a number “more typical of companies with comparable market capitalization.”
Gains from investments in equity securities, which includes the Baker Hughes investment, fell to $497 million from $1.87 billion a year ago.
Workforce reductions led to charges of $290 million in the three months ended June 30, and have totaled $501 million so far this year. That compares with a 2020 workforce-reduction restructuring charge of $856 million — GE had about 174,000 employees in 2020, down from 205,000 employees in 2019.
With the European Commission clearing on Monday the deal in which GE’s GE Capital Aviation Services (GECAS) aircraft leasing business combines with AerCap, following the U.S. Department of Justice’s completed review, the deal is expected to close by the end of 2021.