For its 3Q19 results, General Electric (GE), reported adjusted net income of $0.15/share, about 25% higher than consensus estimates, and 36% higher than a year ago.GE shares rose 11% on the day.
As GE’s chief executive Lawrence Culp’s words properly describe the results, “another quarter of progress in the transformation of GE.” The company has a long way to go but is clearly making improvements.
The company raised its full-year Industrial segment free cash flow outlook to "$0 - $2 billion”, an improvement from their prior guidance of "$(1) to $1 billion”. For GE, having zero cash outflow is vastly better than negative outflows, as cash is so critical to their turnaround. This guidance raise is encouraging.
Industrial segment revenues, net of divestitures and other transactions, increased 7% from a year ago, driven by a 10% increase in their Aviation (aircraft engines) operations. In addition to higher revenues, cost-cutting helped boost Industrial profits. Incremental organic margins of 37% lifted the quarter’s segment margins to 11.2%. CEO Culp’s efforts have improved how this collection of businesses operate.
GE completed their annual test to determine future long-term care losses, resulting in a reasonable $1 billion charge. While large, this charge alleviates considerable concern that it could have been much larger.
Major issues still need resolving: GE Capital’s balance sheet remains massive, at $121 billion, and murky (still not clear what unknown liabilities are lurking there), the Power business continues to produce losses and its new orders are falling, and Aviation’s future (with $4.8 billion in YTD profits, it is critical to GE’s turnaround) showing a tad of weakness due to the Boeing 737 MAX issues, among other struggles.
However, when the pending sale of the BioPharma business is completed, GE’s financial position will significantly strengthen with the estimated $20 billion in cash proceeds. The company’s improvements so far have been much better than the bearish analysts projected. It appears that the company is in capable hands. We remain optimistic about GE’s future.
Disclosure Note: One or more employees of the Publisher own GE shares.