What to watch in General Electric earnings report

General Electric (GE) is scheduled to report results of its first fiscal quarter before the market opens on Tuesday, April 30, with a webcast scheduled for 8:30 am ET. What to watch for: 1. GUIDANCE: On GE’s fourth quarter earnings conference call on January 31, GE Chairman and CEO Larry Culp said, “Our strategy is clear: de-leverage our balance sheet and strengthen our businesses, starting with Power. To do this, we are improving execution, customer focus, and how we set priorities across GE. I’m confident in our team, technology, and the global reach of GE’s brand and relationships. We have more work to do, but I’m encouraged by the changes we’re making to strengthen GE and create value for our shareholders, customers, and employees.” The company also gave fiscal 2019 guidance at the time, saying it saw low- to mid-single digit revenue growth in 2019, along with industrial organic revenue growth up mid-single digits, and Power down in a flat to slightly down market. GE added that it saw operating headwinds, such as the PTC progress cycle, reversing in Renewables and will spend more cash on restructuring at both Corporate and Power, and said it saw organic growth and margins in a similar range to last year in Healthcare, with double digit revenue growth in Renewables. 2. SPIN-OFFS AND DIVESTITURES: On February 25, GE completed its spin-off of Transportation Systems Holdings, which will hold a portion of GE Transportation, a business unit of GE. Immediately following the spin-off, it merged with a subsidiary of Wabtec Corporation (WAB). GE shareholders collectively own approximately 24.3% of the outstanding shares of Wabtec common stock on a fully diluted basis. Also on February 25, GE announced a definitive agreement to sell its BioPharma business to Danaher Corporation (DHR) for a total consideration of $21.4B, including $21B in cash, as well as Danaher’s assumption of certain pension liabilities. GE said it expected to use the proceeds from the transaction to reduce leverage and strengthen its balance sheet. The transaction is expected to close in Q4 of 2019, subject to regulatory approvals and customary closing conditions. The BioPharma business being divested is part of GE Life Sciences. In 2018, the BioPharma business generated revenues of approximately $3B. 3. GE POWER: On GE’s Q4 earnings conference call, CEO Larry Culp said GE was “in very early innings” of turning around its GE Power business. On March 14, Culp said in an interview with Jim Cramer that the “Power division free cash flow will remain negative through at least 2020” and added that GE has “under-managed the Power business.” JPMorgan analyst Stephen Tusa downgraded GE to Underweight from Neutral on April 8, citing, among other things, that Power/Renewables “remains weak.” Credit Suisse analyst John Walsh lowered his estimates for GE on March 15, following the company’s outlook call, but noted that the Power segment margin guidance of “positive” was better than expected. Walsh thinks GE remains a battleground stock and expects it to be range-bound ahead of Power execution and broader restructuring, and kept a Neutral rating and $11 price target on GE shares.

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