achieved a profit of 17 cents in the second quarter with a turnover of 28.8 billion US dollars. The result was 5 cents above Wall Street expectations. In addition, the company increased its full-year results for 2019 and the cash flow forecast.
As is so often the case with General Electric (Ticker GE), however, it's complicated – there are many moving parts. The 17-cent amounts do not include some one-time expenses and tax benefits.
However, the results look better than expected and management's statement on cash flow in the quarterly press release is far more important to the stock than its reported earnings. The management now assumes that the company does not consume cash (taking into account the forecast of mid-2019). This is better than GE's $ 1 to $ 2 billion forecast for the first quarter.
"With improvements in power, lower restructuring and interest expenses, higher revenues and better visibility in half, we are increasing our full-year outlook for organic revenues in the Industrial segment, adjusted [earnings per share] and free cash flow from industry. CEO Larry Culp said in the press release of the company.
The background story. Cash is currently more important to investors than earnings as GE remains a turnaround. New CEO Culp sells assets to reduce debt and cut costs to return the ailing power business back into profitability.
What's new? New orders and sales in the Power business unit fell by 22% and 25%, respectively, compared to the previous year. Things are still tough. GE lowers costs to position the business for a smaller future. The reported costs decreased by 10% compared to the previous year.
(BA) was briefly mentioned in the company's press release. There was more news in the conference call: The management referred to comments made at the Paris Air Show on the GE9X engines built for the latest 777 aircraft. The GE9X program incurs additional costs in connection with a subproject mentioned by Boeing in its conference call.
Continuing to roll out the Boeing 737 MAX will reduce GE's cash flow by $ 400 million each in the third and fourth quarters. This is a sign that sustained MAX delays can hit aviation suppliers. GE manufactures the Leap engines that power the MAX Jet. "Remember, the jump volume is expected to increase in the second half, and that's exactly what [the cash flow guidance] refers to," Culp said. "And then, as far as the general outlook [cash flow] is concerned, we are sure to observe that. It is embedded in the frame. "
GE Capital revenues declined only slightly compared to the first quarter of 2019.
Outlook: The results appear to be a win for GE investors. Barron expected the stock to have a good day relative to the overall market, but Wall Street is still digesting the numbers.
Bulls and bears seem to be anchored in their positions. JPMorgan Analyst Stephen Tusa called the result "low quality", and RBC analyst Deane Dray wrote: "GE delivered a number of positive ones Headlines in [the second quarter] that we expect to be well received by investors. "Dray rates GE's stock as buying, while Tusa rates it as selling.
His optimistic outlook seems to be coming through 4% to $ 10.10 in the morning.
At the close on Tuesday, GE's share price jumped nearly 45% since the start of the year, outperforming 18% year-on-year
Dow Jones Industrial Average.
Even so, the stock fell nearly 17% last year, which is worse than the 7% increase in the Dow over the same period.
GE announced in a separate press release this morning that CFO Jamie Miller is "changing roles". Miller has been with GE for eleven years.
Write to Al Root at [email protected]