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Mayank Marwah
Mayank Marwah
Articles (998) 

Key Takeaways From General Electric's 3rd-Quarter Results

Aviation segment recorded a 39% sales decline

October 28, 2020 | About:

General Electric Co. (NYSE:GE) released its third-quarter results before the opening bell on Oct. 28. The U.S.–based industrial conglomerate registered better-than-expected earnings and revenue for the quarter thanks to robust sales in the power and renewable energy segments. However, results were down on a year-over-year basis.

Performance at a glance

The company recorded adjusted earnings of 6 cents per share for the quarter, which surpassed Wall Street's estimates of a loss of 4 cents per share. Revenue amounted to $19.42 billion, which was more than the anticipated $18.73 billion. In a statement, Chairman and CEO H. Lawrence Culp Jr. said:

"We are managing through a still-difficult environment with better operational execution across our businesses, and we are on track with our cost and cash actions. While our work continues, GE's transformation is accelerating, and we expect Industrial free cash flow to be at least $2.5 billion in the fourth quarter and positive in 2021. We remain focused on unlocking upside potential for the long term."

The industrial free cash outflow for the quarter, one of the most important metrics, came in at $514 million versus $650 million reported in the prior three-month period.

While total orders dipped 31% to $15.5 billion, organic orders tumbled 28% year over year.

Segment performance

The conglomerate's aviation division recorded a 39% revenue decline to $4.92 billion. Equipment orders were down as the company sold 385 fewer engines as compared to the year-ago quarter. Likewise, service revenue plunged year over year, driven by decreased commercial spare part shipments coupled with lower shop visits. 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 decline of 79% in operating profit to $356 million.

In the health care space, the company reported sales of $4.57 billion, which reflected a decline of 7% from the year-ago quarter.Orders bagged during the quarter were valued at $4.1 billion, down 20%. Segment profit came in at $0.8 billion, which tumbled 21% as reduced costs were more than offset by headwinds in logistics and supply chain.

Revenue in the power segment increased 3% to $4.03 billion. By contrast, its orders dropped 12% in the reported quarter to $3.4 billion. Shifting gears, the renewable energy segment witnessed a gain of 2% in revenue to $4.53 billion. Orders in the segment were down 21% to $4 billion.

Looking ahead

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 fourth quarter of the year given the present efforts. In May, the company announced it would reduce as much as 25% of its 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.

The company has already reduced its workforce by nearly 15,000 jobs in 2020 and projects that figure to be about 20,000 by the end of the year.

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 Covid-19 pandemic. 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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About the author:

Mayank Marwah
A seasoned writer with keen interest in the automotive, technology, telecommunication, retail and aerospace sectors.

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