General Electric gave a tepid outlook for 2022 after beating quarterly sales and earnings views while missing on free cash flow. GE stock dived to a new 52-week low Tuesday as the market leaned deeper into its correction.
"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 (prior forecast) range," GE said in a news release Tuesday.
In an accompanying presentation, GE cited the impact of the Russia-Ukraine war and a Covid-19 resurgence in China as new factors clouding its outlook since January, when it offered its initial 2022 guidance. It additionally cited inflation and supply disruptions as ongoing challenges.
The three-way GE split remains on track, the company said in Tuesday's earnings report.
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General Electric Earnings
Estimates: Analysts on Wall Street expected GE earnings to tumble 24% to 18 cents per share on a 2% sales drop to $16.851 billion. They forecast a cash burn of $816.5 million in a seasonally weak first quarter, after three quarters of positive cash generation.
Free cash flow, or FCF, is a closely watched measure of the health of GE's operations. It rebounded strongly in 2021 after crumbling by two-thirds in 2020.
Results: GE earnings rose 85% vs. a year earlier to 24 cents a share. Revenue edged down 0.5% to $17.04 billion, but also topped views. However, free cash flow came in at -$880 million.
For Q1, General Electric reported continued recovery in its flagship aviation business and strong demand in health care, but its energy businesses lagged. Revenue rose 12% year over year and profits soared 42% in aviation. Revenue rose 1% in health care but fell 12% in renewables and 11% in power.
Outlook: On Tuesday, GE reaffirmed 2022 guidance, initially given in January and updated in March. But it guided to the low end of its earlier range, which includes EPS of $2.80-$3.50 and FCF of $5.5 billion-$6.5 billion.
In all of 2022, analysts polled by FactSet forecast GE earnings of $3.23 a share. But that could change; the analyst consensus has not been revised since GE's update early Tuesday.
GE Stock
Shares plunged 10% to 80.59 on the stock market today. GE stock tumbled to its worst levels since November 2020, now far below its 50-day moving average and even further below its 200-day average. GE stock failed a brief November breakout past 115.42, which followed the three-way breakup news.
The relative strength line for GE stock dived Tuesday along with the stock, making a new low.
Key aviation rival Raytheon Technologies dipped 0.4% to 99.19, just below its 50-day line, after earnings beat but guidance came in light. RTX stock nearly flashed an automatic sell signal Monday ahead of a big earnings week for defense stocks while military spending hit a milestone.
GE Split, Restructuring
In 2024, GE will emerge as an aviation-focused company after a three-way breakup. The American industrial icon plans to spin off its lower-growth health and energy businesses to focus on aviation.
GE's restructuring reflected years of dwindling profits.
Amid crosswinds, GE and Raytheon are pivoting to aviation, leaving their storied conglomerate pasts behind. Both make jet engines and other parts.
The Russia-Ukraine war means higher defense spending and missile demand. But it has further disrupted already-strained global supply chains.
Russia is a key supplier of titanium, widely used in the aerospace industry. Both Russia and Ukraine are key producers of oil and gas and industrial metals such as iron, aluminum and steel.
A jump in energy and metals prices following the war has aggravated inflationary pressures. Meanwhile, widening Covid-19 lockdowns in China are hurting supply chains afresh.
In commercial aviation, Boeing 787 Dreamliner deliveries remain halted for now. Reuters reported April 7 that Boeing told key airlines and parts suppliers that Dreamliner deliveries would resume in the second half of 2022.
Both GE and Raytheon are suppliers for Boeing's critical 787 jetliner. Boeing reports early Wednesday.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
