Key takeaways
- General Electric reported better-than-expected profits and sales, raising its forecast for the full year.
- The company is expected to split into two businesses by the second quarter of next year.
- GE stock price rose 5.3% in line with earnings
Talk about a winning streak. General Electric’s third-quarter profits were better than expectations almost across the board, at excellent timing ahead of the company’s split into two separate businesses. Earnings, profits, and revenues all rose, and the company’s full-year guidance was raised in return.
However, it hasn’t all been plain sailing, with the company cutting its growth forecast for jet engine deliveries this year as supply chain issues continue to hit the sector. That didn’t bother Wall Street, as GE’s stock price rose on Tuesday.
Here’s the update on GE’s earnings, the stock market’s reaction, and how GE’s pace is a sign of America’s continued industrial prowess.
What happened to GE’s profits?
GE investors had a good day this week. The company reported a strong third quarter, with adjusted earnings per share of 82 cents on revenue of $16.5 billion. Analysts’ consensus estimate was 56 cents for revenue of $15.5 billion, a sizable jump for GE.
As for future guidance, this is more good news as GE raised its full-year earnings forecast for the second consecutive quarter. The company now expects a range of $2.55 to $2.65 per share, up from the previous quarter’s previous guidance of $2.10 to $2.30. GE also raised its free cash flow estimates to $4.9 billion, another jump from the $4.4 billion forecast in the second quarter.
Commenting on the earnings report, GE CEO Larry Culp said the company “posted another very strong quarter with double-digit growth in revenue, earnings and cash flow.” and that he was “more excited than ever about the way forward.”
Everything is going well for the GE spin-off
This is all good news ahead of the company’s planned spin-off of GE’s renewable energy and gas-fired power generation business, GE Vernova, which is expected to be completed by the second quarter of the year. ‘next year. That’s a little later than the previous timeline GE announced, but the conglomerate announced some executive appointments in August, which should give investors hope.
Once the split is complete, GE will become GE Aerospace. GE booked aerospace orders worth $9.8 billion for the sector in the third quarter, above the $8.4 billion forecast. However, the company cut its growth forecast for its LEAP jet engine deliveries for the remainder of 2023 and next year as well, citing supply chain issues as demand booms.
GE is now targeting a 20% to 25% year-over-year increase in deliveries, according to Culp, instead of 40% to 45% – that’s quite a downgrade. GE’s renewable energy division is still posting a loss as well, posting an operating profit of minus 7.6%, but still an improvement from the negative 26% in the same period last year.
What was the reaction of the stock markets?
Wall Street was more than happy with what it saw – and the stakes were high, given that GE’s stock price has soared more than 85% since the start of the year. GE stock climbed another 5.3% on Tuesday, while the S&P 500 and Dow Jones Industrial Average both gained 0.5%.
GE has certainly outperformed its competitors in 2023. Year to date, Schneider Electric’s stock is up 5.21%, and Siemens’ stock is currently down more than 1%. Boeing saw its stock fall 6.7% and Lockheed Martin 7.7%.
US industrial production bucks trend
GE’s strong earnings report is a good sign for the industry as a whole, which has seen the United States take a lead on the global stage with its industrial production. U.S. factory output rose more than expected in September, with manufacturing output increasing 0.4%, according to the Fed.
S&P Global also reported that its flash U.S. Composite Purchasing Managers’ Index, which tracks the manufacturing and services sectors, rose to a score of 51.0 in October, the highest level since July. The survey’s manufacturing PMI also reached 50, the highest score since April.
Later this week, we will also receive the Commerce Department’s dashboard of third-quarter economic activity, which analysts predict will show that U.S. GDP growth was the highest in two years between July and September .
All this gives hope that the US economy will achieve the legendary soft landing after the Fed raised interest rates to their highest level in 22 years, with a target of 5.25% to 5.5%. .
The essential
GE’s higher profits are good news across the board, despite some concerns about the profitability of renewable energy and deliveries in the aerospace sector. The company had to set the bar high to satisfy Wall Street – and that bodes well for the eventual spinoff, even if it happens a little later than expected.
Rising profits also help fuel the idea that the U.S. economy is still resilient and the manufacturing sector is recovering from high inflation, high interest rates and supply chain problems – which is good news for the Fed before its November meeting.