What happened
General Energy (NYSE: GE) reported earnings this morning. Then their stock fell.
Initially, a drop of more than 5%, GE shares have only slightly recovered in afternoon trading, a 4% loss at 3 pm EDT, but things could certainly have gotten worse. Instead of the pro-forma loss of $ 0.10 per share that Wall Street had predicted, GE lost $ 0.15 per share in the second quarter, or 50% worse than expected.
Image source: Getty Images.
And that
The news was not entirely bad: Revenue was at least ahead of expectations at $ 17.75 billion, but it was bad enough already. GE’s sales decline from the second quarter of last year amounted to a 24% drop. And even the $ 0.15 loss GE incurred was just the pro forma number. Calculated in accordance with Generally Accepted Accounting Principles (GAAP), the loss was almost twice as bad: $ 0.27 per share.
Industrial “organic” (that is, nonfinancial) revenues sank by 20%, and industrial free cash flow reached $ 2.1 billion negative.
Now what
CEO Larry Culp called it “a very challenging second quarter,” and it may not improve much soon. Orders, which help us determine whether future revenue will grow or shrink, were down 38% in the second quarter, an ugly omen of what is to come.
Although GE says things improved a bit in June and July, it is forecasting further deterioration in the macroeconomic environment before any recovery can come. Consequently, GE is cutting costs and plans to “fully monetize” (ie sell) its investment in Baker Hughes over the next three years. You will need the cash because, of course, you are burning cash right now, and Culp does not expect to return to a positive (industrial) free cash flow before next year.
Judging from today’s price action, not all investors are interested in waiting to see if it succeeds.
