GE shares sink as CEO Culp can’t hit bottom in aviation business

Shares in General Electric Co. sank into volatile operations on Wednesday after the diversified industrial conglomerate said it suffered “general” weakness in the second quarter and indicated that its aviation business could take years to recover from the effects of the pandemic. COVID-19.

The GE stock,
It took a 4.4% dip to close at the three-week low of $ 6.59. That reversed a gain of up to 1.6% just moments after opening, and a pre-market recovery of up to 4.5% minutes after second-quarter results were released. Trading volume increased to 146.7 million shares, approximately double the full-day average of 73.2 million shares.

The liquidation marks the biggest one-day decline after earnings since it fell 8.8% on October 30, 2018, after GE reported third-quarter 2018 results.

Back then, the energy business was GE’s biggest problem, and aviation was its favorite. In the last quarter, Power continued to show improvements and aviation continued to be the biggest problem, as the BA base of the company Boeing Co.
The 737 MAX aircraft and the COVID-19 pandemic weighed heavily.

GE shares have fallen 41% to date, while the DIA Jones Industrial Average DJIA,
+ 0.60%
it has fallen 7%.

See also: GE shares shrink to a minimum of 3 decades as the airline industry outlook darkens.

FactSet, MarketWatch

On Wednesday, GE reported second-quarter net losses that expanded to $ 2.18 billion, or 26 cents per share, from $ 61 million, or 1 cent per share, and an adjusted loss of 15 cents per share, which did not reach FactSet loss consensus of 10 cents per share.

“Now, as we expected, our financial performance declined across the board in the quarter,” Chief Executive Larry Culp said, according to a FactSet transcript of GE’s conference call with analysts, after the COVID-19 pandemic took over a high price.

Meanwhile, what may have given the action an early boost was that overall revenue fell 24% to $ 17.75 billion, but exceeded expectations of $ 17.01 billion. And free cash flow (FCF) was negative $ 2.1 billion, which was much better than negative expectations of $ 3.3 billion. And Chief Executive Larry Culp reiterated his view that the FCF would be positive again in 2021.

Additionally, GE said it was launching a program to sell its stake in Baker Hughes Co. BKR,
over the next three years, and I planned to use the proceeds to pay off the debt. GE said it owned 377.4 million Baker Hughes shares, which at current share prices would be valued at about $ 5.9 billion.

Culp said in the conference call that GE’s overall financial performance began to see signs of improvement in June and July.

However, specifically for the aviation business, Culp said the drivers who really hurt business in March: airlines that conserve cash, don’t fly the planes they have, limit maintenance spending and defer orders, “remain relevant today. “

“We are planning a sharp market downturn this year, and probably a slow recovery for several years,” Culp said.

GE Aviation revenue fell 44% to $ 4.38 in the second quarter, without the FactSet consensus of $ 4.62 billion. In comparison, Raytheon Technologies Corp. RTX,
reported Tuesday that sales at its Collins Aerospace business fell 35% to $ 4.30 billion, above expectations of $ 3.56 billion, according to FactSet. And Honeywell International Inc. HON,
+ 1.69%
reported on July 24 that aerospace sales fell 28% to $ 2.54 billion but exceeded expectations of $ 2.41 billion.

See related: GE shares sink after Warren Buffett’s negative outlook, ‘permanent’ job cuts at Aviation.

Wolfe Research analyst Nigel Coe asked on GE’s analyst call if that, given “very encouraging” trends in airline departures in recent months, could the second quarter be considered the “low point” for aviation , but Culp could not say yes. He said that while the starting trends are encouraging, “by no means are we suggesting” things will be easier.

“I think this will continue to be a challenging environment as governments and the public discuss how to react broadly to trends in the case,” Culp said.

“So we will have to see how it develops,” Culp said.

Credit Suisse analyst John Walsh asked that given all the cash flow put and take, how will GE hit a positive FCF in 2021?

Culp said Healthcare is “well positioned to lead” the recovery, and “changes” in Energy and Renewable Energy are expected to continue. But for Aviation, Culp repeated that he expected a “multi-year recovery.”

When Morgan Stanley’s Josh Pokrzywinski continued to ask for a “cadence” for that multi-year recovery, Culp was unable to give a direct response.

He said that the best airline departures should help the Aviation services business, but as airlines work through what this means for them, not just in terms of their fleet plans, their own cash preservation efforts. and its future maintenance programs, the service business will continue to be under pressure.

“I just don’t think there are really two ways to do it,” Culp said. “So despite the improvement in outings and that sequential increase, I think we are aware that this will be a challenge for us in 2020, and that will not be the end.”