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Key Takeaways
- Analysts estimate adjusted EPS of $0.09 vs. $0.21 in Q4 FY 2019.
- Renewable energy revenue is expected to rise slightly YOY.
- COVID-19 has hit GE’s total revenue hard, including its aviation business.
General Electric Co. (GE) has been hobbled by a string of steep quarterly earnings declines due to the fallout of the COVID-19 pandemic. The virus hit as GE already was in the middle of a major turnaround effort after years of crisis, selling several core businesses and betting much of its future on the aviation industry. But air travel has been decimated by the pandemic. And GE’s aviation unit, usually its most profitable business, has been hammered.
Investors will be focused on whether GE’s financial results show some improvement when the company reports earnings on January 26, 2021 for Q4 FY 2020. The news may not be good. Analysts expect continuing sharp declines in adjusted earnings per share (EPS), though these declines may be less severe than in recent quarters.
Investors also will focus on revenue at GE’s renewable energy unit, a key business that has exhibited strong growth in recent years. It’s also poised to benefit as the Biden administration implements a series of major initiatives to address climate change. In the short term, analysts estimate that GE’s renewable energy revenue will stall in Q4 FY 2020, posting virtually no growth.
Shares of GE have lagged the broader market over the past year. Prior to the pandemic-induced market crash in early 2020, GE had been outperforming. The stock initially rebounded with the market in late March, but then it retreated, reaching a low for the year in mid-May. It was not until around the end of September that the stock began to stage a sustained comeback and has significantly narrowed the performance gap. Shares of GE have provided a total return of -1.8% over the past 12 months, well below the S&P 500’s total return of 16.0%.
Source: TradingView.
The company’s stock continued to trend higher following its Q3 FY 2020 earnings report. While adjusted EPS plunged 60.2% compared to the year-ago quarter, the positive earnings were an improvement from the loss posted in the previous quarter. Revenue fell 16.9%, marking the ninth consecutive quarter of YOY declines. GE said that the pandemic inflicted the most damage on its Aviation segment and its aircraft leasing business within its Capital segment.
GE’s Q2 FY 2020 results were a low point, which weighed on its stock. The company posted an adjusted loss per share of $0.15, its first loss in at least 15 quarters. Revenue fell 24.2%, the largest decline in at least 14 quarters. The aviation unit, which produces jet engines for Boeing Co. (BA) and Airbus SE (EADSY), also posted a loss. The unit had to cut jobs amid plunging orders.
Analysts are forecasting more declines in Q4 FY 2020. Adjusted EPS is expected to sink 55.3% YOY, a significant fall but not as severe as the previous quarter. Revenue is expected to fall 16.4%, which would make it the tenth consecutive quarter of YOY declines. For full-year FY 2020, adjusted EPS is expected to plummet 93.5%, its biggest annual decline in at least five years. Annual revenue is expected to shrink 16.4%.
| GE Key Metrics | |||
|---|---|---|---|
| Estimate for Q4 FY 2020 | Q4 FY 2019 | Q4 FY 2018 | |
| Adjusted Earnings Per Share ($) | 0.09 | 0.21 | 0.14 |
| Revenue ($B) | 21.9 | 26.2 | 26.5 |
| Renewable Energy Revenue ($B) | 4.8 | 4.7 | 4.6 |
Source: Visible Alpha
As mentioned above, investors also will focus on revenue generated by GE’s renewable energy business, which is comprised of wind, hydro, solar, and other renewable energy solutions. GE has increased its focus on its renewable energy business in recent years as it has shed legacy units including its lightbulb business, which was created by GE’s legendary founder and inventor Thomas Edison more than 130 years ago. The company is undertaking some ambitious projects to become a leader in renewable energy. Its prototype for a new offshore wind turbine, called the Haliade-X, is the largest in the world.
GE’s renewable energy business has grown considerably in recent years, with annual revenue growing from about $9.8 billion in FY 2016 to $15.3 billion in FY 2019. However, revenue growth has slowed significantly in recent quarters amid the pandemic. Renewable energy revenue rose 2.3% in Q3 FY 2020 after declining 3.4% in Q2 FY 2020. Analysts expect it to rise just 0.1% in Q4 FY 2020 and only 4.2% for all of FY 2020. It would be the slowest pace since FY 2017. Whether GE’s renewable energy business rebounds may depend heavily on two factors: how fast the economy recovers and whether President Biden’s climate change initiatives accelerate growth in demand for renewable energy.
