Analyst: GE Earnings Aren't As Great As They Seem

General Electric Company (NYSE: GE) investors received some much-needed good news Tuesday after the company reported a first-quarter earnings beat and reaffirmed its previous full-year financial guidance.

The earnings report may be the sign investors needed that expectations for GE have finally bottomed, but analysts say the company still has a long way to go before it is investable.

The Numbers

GE reported adjusted EPS of 14 cents per share on revenue of $27.3 billion in the first quarter. Both numbers topped consensus analyst expectations of 9 cents and $27 billion, respectively. Revenue was down 2 percent from a year ago.

GE’s Aviation business was the shining star of the quarter, generating $1.7 billion in profits, up 4 percent from a year ago.

Unfortunately, management confirmed that the grounded Boeing Co (NYSE: BA) 737 Max will be a new earnings risk for GE given that the 737 Max uses GE’s LEAP engines.

In addition to the top- and bottom-line numbers, GE investors are watching the company’s struggling Power unit closely. The Power segment reported just $81 million in operating profit in the first quarter, own 71 percent year-over-year. The Renewable Energy segment endured a 3-percent revenue drop and generated a net loss of $162 million.

GE also said it is making progress on its strategy to sell off assets and improve its balance sheet. GE Capital sold $1.1 billion in assets in the quarter, and GE paid down $2 billion in external debt.

Analyst Reaction

Despite the positive knee-jerk market reaction to GE’s quarter, Gordon Haskett analyst John Inch said in a Tuesday note that GE’s numbers may not have been as good as they seem at first glance.

“Potentially significantly lower restructuring spending coupled with large ‘deltas’ for BHGE call into question the degree to which the 1Q19 results were really that much better (vs. expectations),” the analyst said. 

Inch reiterated an Underperform rating on GE with a $7 price target.
GE shares were trading higher by 4.06 percent to $10.12 at the time of publication Tuesday. 

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