General Electric wind-turbine engine nacelles, or housings.
Sebastien Salom-Gomis/AFP via Getty Images
General Electric reported somewhat messy first-quarter numbers that topped Wall Street estimates after all necessary adjustments. Shares, however, are down sharply. Two words from CEO Larry Culp have investors concerned.
GE (ticker: GE) reported adjusted earnings per share of 24 cents from $17 billion in sales. Analysts were projecting 8 cents from $16.9 billion in sales, according to FactSet.
It’s an earnings beat, but unadjusted earnings were a loss of 74 cents a share. There were charges for asset impairment, Ukraine, and business restructuring, among others, in the quarter.
There was a lot going on and this is the second quarter of a new reporting structure for GE. The company no longer reports its financial division separately. “We’re down two pants sizes,” said Culp, referring to the size of the quarterly report. The form 10-Q, excluding documents added for investors to review, came in at about 37 pages. In 2018, before Culp arrived, the first quarter 10-Q was about 115 pages long. “It’s a good thing,” added the CEO.
Free cash flow came in at $880 million, but the first quarter is typically seasonally weak for the company. What’s more, cash flow improved by about $1.7 billion compared with the first quarter of 2021.
“This quarter, the GE team improved services, orders, and cash while scaling lean in all businesses to drive margin expansion,” said Culp in the company’s news release. “We’re holding the outlook range we shared in January, but as we continue to work through inflation and other evolving pressures, we’re currently trending toward the low end of the range.”
“Low end” might spook investors. GE’s current guidance, reiterated in March, calls for 2022 EPS between $2.80 and $3.50 a share and free cash flow of $5.5 billion to $6.5 billion. Earnings of 24 cents are a long way from $2.80 or $3.50 a share, but the first quarter is a seasonally slow time for GE’s businesses.
Still, GE is dealing with a lot of geopolitical and economic uncertainty. And Covid-19 still is lingering. “I’ve seen nothing like this in my career,” said Culp. “The cross currents are just extreme.”
GE stock was holding up relatively well, despite the headwinds. Coming into Tuesday trading, shares were down about 5% for the year. Shares are down more than 8% in early trading Tuesday, at about $82 a share. The S&P 500 and Dow Jones Industrial Average are down about 0.7% and 0.5%, respectively.
GE stock could be in for some volatility. Coming into the report, options markets implied shares would move about 5%, up or down, following results. The stock has moved an average of about 2.5%, up or down, after the past four quarterly reports.
Shares have risen two times and fallen two times after the past four reports. GE has beaten Wall Street EPS estimates in three of the past four quarters. One drop came after the EPS miss.
Management hosts a conference call at 8 a.m. Eastern time to discuss the results. Analysts and investors will be eager to hear more about how the year is shaping up amid all the economic and geopolitical uncertainty.
Write to Al Root at [email protected]
