GE earnings: Wall Street analysts lowered beat bar, but investor expectations now ‘slightly elevated’

Investors in General Electric Co. should expect a ‘particularly noisy’ fourth-quarter earnings report from the industrial conglomerate, which will be the first since the company announced its breakup and announced it would begin reporting its results on a consolidated basis.

GE GE,
-1.98%
is expected to release results on Tuesday, January 25, before the opening bell. It will be less than three months after the company announced plans to separate into three companies, as it splits its healthcare business in 2023 and combines its renewable energy, power and digital businesses, leaving the rest of GE as an “aviation-focused”. business.

Don’t miss: GE stock hits 5-month high as plans to split into 3 companies bolster hopes of a breakout.

The company is expected to post year-over-year growth in net income for the third consecutive quarter, but a 13th straight quarter of decline in total revenue, according to FactSet data, as the company continued to execute on its plan. turnaround by selling assets.

Analysts have downgraded their expectations for closely watched industrial earnings, revenue and free cash flow since the GE split announcement, but that may be more a factor in macro concerns than specific concerns. to the company.

RBC Capital analyst Deane Dray said the rapid spread of the omicron variant of the coronavirus that has been causing COVID-19 since early December and continued supply chain disruptions and labor shortages “continue to plague” the multi-industrial sector.

“Demand remains strong, but many companies are building up record backlogs and unable to handle the high volume of orders,” Dray wrote in a research note to clients. “The Q4 earnings setup is now likely more austere than consensus expected in early December.”

The other concern is what GE might say when it provides its outlook, which Dray said could include more revenue pushes and a 2022 forecast that’s “more back-half weighted.”

That said, while the bar for beating analyst forecasts has been lowered, Dray said the fact that GE’s stock has outperformed its peers in recent weeks indicates that “expectations are looking slightly elevated.” This suggests that it might take a bigger than usual pace to push the stock higher.

GE stock fell 2.0% on Friday to $96.30. It has fallen 6.6% during a four-day losing streak, but has gained 1.9% since the start of the year. Meanwhile, the SPDR Industrial Select Sector XLI exchange-traded fund,
-0.92%
has lost 4.4% this year and the S&P 500 SPX index,
-1.89%
fell 7.7%.

Here’s what Wall Street expects GE to report, according to a FactSet survey of analysts:

Earnings: The average estimate from 18 analysts polled by FactSet is for adjusted earnings per share of 85 cents, down from 64 cents in the same period a year ago. The EPS consensus is down a nickel since the end of the third quarter.

GE has beaten the FactSet EPS consensus for the past three quarters, after missing out for three straight quarters previously.

Estimize, a crowdsourcing platform that gathers estimates from buy-side analysts, hedge fund managers, corporate executives, academics and others, has an EPS estimate of 89 cents.

“This quarter is going to be particularly noisy as GE transitions its financial statements to single-column reporting going forward, where key results will now be on a consolidated basis,” RBC’s Dray wrote.

Income: The FactSet consensus projects revenue of $21.31 billion, up from $21.93 billion a year ago. The September 30 consensus estimate had called for a slight increase to $22.22 billion. Estimize’s average estimate is $21.21 billion.

GE has missed the FactSet revenue consensus for the past three quarters, having beaten for five straight quarters previously.

Among GE’s business segments:

  • The FactSet consensus for aviation revenue is $6.68 billion, down from $5.85 billion a year ago. Aviation, which has been hardest hit by the COVID-19 pandemic, has missed revenue expectations in the past three quarters and in six of the past seven quarters.

  • Electricity, which was GE’s biggest issue before the pandemic, is expected to record $5.17 billion in revenue, up from $5.38 billion a year ago. Power has exceeded revenue expectations in five of the past six quarters.

  • Health revenue is expected to decline slightly to $4.72 billion from $4.82 a year ago. The segment missed third-quarter revenue expectations after beating the previous six quarters.

  • Revenue from renewables is expected to drop to $4.35 billion from $4.44 billion a year ago. The company missed expectations last quarter, having beaten eight of the previous nine quarters.

Industrial free cash flow: The average estimate from five analysts polled by FactSet is $3.06 billion, up from $4.36 billion a year ago. On September 30, estimates from two analysts polled by FactSet were $1.14 billion and $3.71 billion, leading to an “average” of $2.42 billion.

RBC’s Dray expects GE to deliver 2022 free cash flow guidance of between $4.0 billion and $5.5 billion, which compares to the FactSet consensus of $5.5 billion .

Stock reaction: The stock rose 2.0% on the day the third quarter results were released on October 26 and gained 1.2% on the day of the second quarter results. Prior to that, the stock had risen on the day earnings were reported in six of the previous 10 quarters, with an average one-day gain of 7.5%. The average one-day loss on days it fell after profits was 2.2%.

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