General Electric Co. (GE, Financial) released its fourth-quarter results before the opening bell on Jan 26. The U.S.-based industrial conglomerate registered better-than-expected revenue for the quarter thanks to robust sales in the power and renewable energy segments. However, the company's earnings fell short of estimates.
The company's shares surged 5.8% to $11 per share in pre-market trading following the earnings announcement.
Performance at a glance
The company recorded adjusted earnings of 8 cents per share for the quarter, which missed Wall Street's estimates of EPS of 9 cents per share. Revenue amounted to $21.93 billion, which was more than the anticipated $21.83 billion.
In a statement, Chairman and CEO H. Lawrence Culp Jr. said:
"As 2020 progressed, we significantly improved GE's profitability and cash performance despite a still-difficult macro environment. The fourth quarter marked a strong free cash flow finish to a challenging year, reflecting the results of better operations as well as strong and improving orders in Power and Renewable Energy."
The industrial free cash outflow for the quarter, one of the most important metrics, came in at $4.4 billion versus the expected $2.8 billion. In 2021, the company expects its industrial cash flow to be around $2.5 billion to $4.5 billion.
While total orders dipped 7% to $23.2 billion, organic orders tumbled 3% year over year.
Segment performance
The conglomerate's aviation division recorded a 35% revenue decline to $5.85 billion. Equipment orders were down as the company sold 309 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 73% in operating profit to $600 million.
In the health care space, the company reported sales of $4.82 billion, which reflected a decline of 11% from the year-ago quarter. Orders bagged during the quarter were valued at $5 billion, down 15%. Segment profit came in at $0.9 billion, which tumbled 17% as reduced costs were more than offset by headwinds in logistics and supply chain.
Revenue in the power segment amounted to $5.38 billion, which remained flat as compared to the prior-year quarter. Its orders jumped 26% in the reported quarter to $5.6 billion. The renewable energy segment witnessed a decline of 6% in revenue to $4.44 billion. By contrast, orders in the segment grew 34% to $6.3 billion.
Looking ahead
Culp warned 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 2021 given the present efforts. The company has reduced as much as 25% of its global workforce last year on a permanent basis in the aviation unit. Culp expects the segment to report positive industrial free cash flow this 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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