GE shocks with ‘unacceptable’ results, guidance cut
Shares of General Electric (GE) are lower in Friday’s trading after the company reported quarterly profit that missed consensus estimates by 20c per share.
GE also cut its outlook for fiscal 2017 as new CEO John Flannery called the results “unacceptable.”
MISS AND CUT
GE this morning reported third quarter industrial operating earnings per share of 29c excluding restructuring charges, missing analysts’ estimates of 49c.
Total revenue for the quarter was $33.47B, which beat analysts’ expectations of $32.56B.
The company said that while the majority of its business units had “solid” earnings performance, “this was offset by a decline in Power performance in a difficult market.” “This was a very challenging quarter,” CEO John Flannery said.
Looking ahead, GE cut its FY17 EPS view to $1.05-$1.10 from $1.60-$1.70, well below estimates of $1.53.
“We are focused on redefining our culture, running our businesses better, and reducing our complexity,” Flannery added.
On GE’s earnings call, Flannery said the results were “unacceptable to say the least” and that while there are many areas of strength at the company, “it’s clear we need to make some major changes.”
Flannery said GE is doing “deep dives” on all aspects of the company, adding that “everything is on the table and there have been no sacred cows.” The company has started to outline its restructuring plans, saying it plans to exit more than $20B of its businesses in the next one to two years, but noted that the dividend is a “priority.”
STRATEGY UPDATE UPCOMING
GE is planning to update its company strategy and 2018 framework on November 13. Flannery has already been cutting jobs, research operations and corporate jets and cars.
GE has also undertaken personnel changes, including the earlier-than-expected retirement of Chairman Jeff Immelt. According to a spokeswoman, “[Immelt felt Flannery] is prepared to be chairman and CEO now and leaving GE allows him to look at opportunities outside the company.”
Additionally, on October 6, GE said CFO Jeff Bornstein would leave the company on December 31 and will be succeeded by GE Transportation CEO Jamie Miller.
Bornstein said on today’s earnings call that GE was not “living up to our own standards or investor standards and the buck stops with me.”
Earlier this month, GE announced the election of Trian Fund’s Ed Garden to its board to replace Robert Lane, who is retiring. Trian’s Nelson Peltz said he had pushed to get Garden on GE’s board to “bring a fresh mindset.”
Deutsche Bank analyst John Inch called GE’s weaker than expected Q3 results this morning “shocking,” noting that the company “falls well short” of generating enough cash to pay its $8B common dividend from operations, which raises the prospects of a pending dividend cut and/or raising financial leverage to pay for the dividend. He has a Sell rating and $21 price target on GE shares.
Meanwhile, Citi analyst Andrew Kaplowitz said the earnings report indicates that the mounting challenges developing over time in the Power business now appear to be fully materializing. Kaplowitz, who has a Buy rating and $31 price target on GE, thinks shares could potentially be approaching a bottom.
GE shares are down about 3% at $22.72, improving quickly from their opening lows. The early drop pushes the stock’s year-to-date losses to nearly 30%. Shares have a 52-weeks trading range of $22.10 – $32.38.
To read timely stories similar to this, along with money making trade ideas, sign up for a membership to Stockwinners.
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.