General Electric Co. GE released its second-quarter results before the opening bell on July 29. The U.S.–based industriall conglomerate registered better-than-expected revenue for the quarter thanks to robust sales in the power and renewable energy segments. However, the company also posted a wider-than-expected loss.
Performance at a glance
The company recorded loss of 15 cents per share for the quarter, which surpassed Refinitiv’s consensus estimates of 10 cents per share. Revenue amounted to $17.7 billion, which was more than the anticipated $17.12 billion. Chairman and CEO H. Lawrence Culp Jr. said:
“We had a very challenging second quarter that we met head-on, executing well operationally while we took actions to further de-risk our company. Our earnings performance was impacted by the ongoing impact of COVID-19 on our businesses, but Industrial free cash flow was better than our expectations and previously communicated range. We made faster progress on elements within our control, including our targeted cost and cash preservation actions."
The industrial free cash outflow for the quarter, one of the most important metrics, came in at $2.1 billion versus the expected $2.2 billion.
While total orders dipped 38% to $13.8 billion, organic orders tumbled 35% year over year.
Segment performance
The conglomerate’s aviation division recorded 44% revenue decline to $4.4 billion in the second quarter. While the company’s equipment orders were down 33%, service orders dropped 67%. Due to the external headwinds from the 737 Max as well as a decline in demand for air travel amid the coronavirus pandemic, the segment witnessed a loss of $680 million, down $2.1 billion.
In the health care space, the company reported sales of $3.9 billion, which reflected a decline of 21% from the year-ago quarter. Orders bagged during the quarter were valued at $4.2 billion, down 18%. Segment profit came in at $550 million, which plunged 43% as reduced cost was more than offset by headwinds in logistics and supply chain.
Revenue in the power segment amounted to $4.16 billion, down 11%. Its orders dropped 42% in the reported quarter to $2.9 billion. Shifting gears, the renewable energy segment witnessed a meagre decline of 3% in revenue to $3.50 billion. Orders in the segment were down 19% to $3 billion.
Looking forward
Culp admits that commercial aviation is going to witness a prolonged plunge. However, he feels the aviation unit should report a sequential rise in earnings and cash generation in the second half of the year given the present efforts. In May, the company announced it would reduce as much as 25% global workforce on a permanent basis in the aviation unit. Prior to this, GE announced a 10% job cut in the U.S. Culp expects the segment to report positive industrial free cash flow in 2021.
As part of its cost-saving initiative, the conglomerate said it would trim costs to the extent of more than $2 billion in order to negate the impact of the coronavirus. In addition, the company said it would implement cash-saving actions of $3 billion.
Disclosure: I do not hold any positions in the stocks mentioned.
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