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Earnings Results: GE stock drops as revenue missed forecasts, while FCF beat

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Shares of General Electric Co. dropped Tuesday, after the industrial conglomerate reported fourth-quarter free cash flow that beat expectations but revenue once again fell short of forecasts, as supply chain challenges, “commercial selectivity” and regulatory uncertainty weighed.

This marked the first quarterly results since GE’s blockbuster announcement in November that it planned to separate into three separate, publicly traded companies, and changed to one-column reporting of its financial statement from three-column reporting.

There was some confusion over whether profit under one-column or three-column reporting should be compared with consensus analyst expectations, as results beat under one format but missed under the other.

Steven Winoker, vice president of investors communications, responded to “a number of questions” regarding the reported results, by saying on the post-earnings conference call with analysts, that “consensus is not comparable to our current numbers,” given the reporting changes, according to a FactSet transcript.

Read more about how one analyst expected a “particularly noisy” earnings report.

GE’s stock GE, -6.61% slumped 6.3% in morning trading, paring an earlier loss of as much as 8.9% to an intraday low of $88.30. The stock was headed toward the worst one-day post-earnings performance since it fell 8.8% on Oct. 30, 2018.

The company swung to a net loss of $3.90 billion, or $3.55 a share, from net income of $2.44 billion, or $2.20 a share, in the same period a year ago.

Excluding nonrecurring items, such as restructuring and debt extinguishment costs, adjusted earnings per share rose to 92 cents from 58 cents. Under the “new one-column reporting format,” GE said adjusted EPS grew to 82 cents from 49 cents.

The FactSet EPS consensus was 85 cents. FactSet appeared to average both numbers, saying EPS of 86 cents topped the consensus.

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Revenue fell 3.5% to $20.30 billion, missing the FactSet consensus of $21.31 billion, with three of its four business segments reporting revenue declines. That marked the fourth-straight quarter that GE has missed revenue expectations.

The closely watched industrial free cash flow for the quarter fell to $3.71 billion from $4.39 billion, but beat the FactSet consensus of $3.06 billion.

For 2021, Chief Financial Officer Caroline Dybeck Happe explained that FCF was $1.9 billion, or $2.6 billion excluding discontinued factoring, with the change to one-column reporting resulting in a negative impact of $3.2 billion mostly from interest and derivatives. In all, Happe said GE generated $5.8 billion in FCF in 2021.

The FactSet consensus for 2021 FCF was $4.52 billion, and FactSet did not confirm whether reported results beat or missed that consensus.

Cost of sales in the quarter dropped 9.1% to $14.34 billion, while total costs and expenses jumped 16.1% to $24.84 billion, as debt extinguishment costs spiked to $5.11 billion from $95 million a year ago.

“We’re seeing real momentum and opportunities for sustainable profitable growth from near-term improvements in GE’s businesses, especially as Aviation recovers and our end markets strengthen,” Chief Executive Larry Culp said.

Among GE’s business segments:

  • Aviation revenue rose 4.0% to $6.08 billion.
  • Power revenue dropped 13% to $4.66 billion.
  • Healthcare revenue declined 4.1% to $4.63 billion.
  • Renewable Energy was down 5.6% to $4.19 billion.

For the aviation business, CEO Culp said on the conference call that recent recent volatility due to the omicron variant “wasn’t a material impact in 2021,” as shop visits were higher than anticipated. “Along with our customers, GE remains confident in the recovery while actively monitoring the impact of travel restrictions,” Culp said.

For healthcare, Culp said order demand “remains strong” despite supply chain disruptions, which he expects to continue.

Looking ahead, GE said it expects 2022 adjusted EPS of $2.80 to $3.50 under the new one-column format. The FactSet EPS consensus was $4.00.

GE expects industrial free cash flow to be “negative” in the first quarter but be at positive $5.5 billion to $6.5 billion in 2022, which surrounds expectations of $5.16 billion.

The stock has tumbled 13.8% over the past three months, while the SPDR Industrial Select Sector exchange-traded fund XLI, -2.21% has declined 5.1% and the S&P 500 index SPX, -1.71% has dropped 4.9%.

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