General Electric Sees Bump in Shares on Earnings Beat Despite Loose Liquidity

It is not often that Wall Street is happy a big company burns through $1.2 billion in cash in the first quarter of the year but that is the case this week with General Electric.  The major utility has had a rough go of it for some time now, with profits tumbling 71 percent in its decelerating power division. 

However, shares climbed nearly 7 percent in premarket trading on Tuesday when the company reported profits and revenue that exceeded forecasts.  With that, Wall Street is now hedging its bets that GE is on track for a full recovery. And GE stands firm that guidance for 2019 will improve industrial free cash flow to between negative $2 billion and zero dollars. 

That’s right, things are looking good for GE because they anticipate the possibility to break even this year. 

In the words of General Electric CEO Larry Culp, “I am encouraged by the improvements we are making inside GE. This is one quarter in what will be a multi-year transformation, and 2019 remains a reset year for us.”

Looking more closely at the numbers we can see what caused the jump.  First of all, earnings per share improved 14 cents, which is fifty percent better than analysts had expected.  Secondly, revenue experienced minimal growth at $27.3 billion, against the expected $27 billion.

Furthermore, GE’s revenue held a steady hand in the first quarter, even with the draining liquidity.  The company would argue, though, they are amidst what they describe as a multiyear turnaround. And on that note, they advised shareholders that this is likely only the beginning. 

For one, while the power business had an operating profit of $81 million, it is still down more than 70 percent from last year. In addition, General Electric said this troubled unit still delivered better-than-expected results. Conversely, GE’s renewable energy business reported a loss of $162 million with revenues in decline on the year by about 3 percent. 

All that in mind, Culp maintains that 2019 will remain “a reset year” because even though first quarter results were better than expected, it was “largely driven by timing of certain items, which should balance out over the course of the year.”

He concludes, “We expect our performance for the year to be in line with our previous commentary.”