General Electric (GE) 1st Quarter Earnings: What to Expect
General Electric (GE), which is set to report first quarter fiscal 2019 earnings results before the opening bell Tuesday, has tons of questions to answer. But none more pressing than its ability to erase doubt as to whether Larry Culp's appointment as CEO was the right move.
If judging solely by the stock’s reaction, up 31% year to date, investors have so far given a thumbs up vote to the new CEO. Culp’s arrival immediately created a sense of optimism that the industrial conglomerate could successfully reset its business, including divestments of a handful of business assets that it can no longer grow. These moves, while ushering in a new path towards recovery, allow the company to streamline its operations while locking in proceeds it can then use to service long-term debt.
There are also signs of margin improvement, suggesting meaningful value-creation is underway. What’s more, the potential trade deal between the U.S. and China has sparked interest in industrial stocks as evidenced by the 22% year to date rise in the iShares U.S. Industrials ETF (IYJ). On Tuesday, Culp and the new regime will need to assure investors that they have the right strategy and wherewithal to tackle the deficits plaguing the company, namely GE’s Power business, which has underperformed.
For the quarter that ended March, Wall Street expects the Boston, Mass.-based company to earn 9 cents per share on revenue of $27.05 billion. This compares to the year-ago quarter when earnings came to 16 cents per share on revenue of $28.66 billion. For the full year, ending in December, earnings are projected to decline 12.3% to 57 cents per share, while full-year revenue of $117.05 billion would mark decline 3.8% year over year.
Restoring the company’s credibility is now Culp’s main objective. So far the company is on the right track. In the fourth quarter, GE beat on both the top and bottom lines, reporting EPS of 14 cents per share on $33.3 billion in revenue. While EPS was down 60% year over year, it was 5 cents ahead of expectations. Revenue, however, rose 5.4% year over year, beating estimates by more than $1 billion, suggesting Wall Street grossly underestimated the company.
Culp has done a solid job identifying the company’s weaknesses and challenges. To which he said, ”Our strategy is clear: de-leverage our balance sheet and strengthen our businesses, starting with Power.” The aviation, power and renewable energy businesses has become bigger focuses of the company. Analysts will also press for details about the company’s recent strategic review, which includes plans to break up its businesses into easier-to-understand pieces.
These matters notwithstanding, while GE still has a long way towards recovery, this quarter should indicate things have taken a sharp turn for the better. Culp's efforts to deleverage the balance sheet, boost free cash flow are positive signs that should mitigate concerns about the long-term health of the company.
At the time of publication, the author held shares of General Electric.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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