Before the markets opened on Jan. 26, General Electric Co. (GE, Financial) reported its earnings results for the fourth quarter and full year of 2020.
Although the company missed Wall Street's estimates on the earnings front, it posted a revenue beat on strong industrial free cash flow, as well as an optimistic forecast for 2021. Following the good news, shares jumped more than 5% to around $11.56 apiece in mid-day trading.
Earnings results
For the quarter, General Electric reported earnings per share of 27 cents on a GAAP basis and 8 cents on an adjusted basis, with revenue coming in at $21.93 billion (a 16% decline year over year). Adjusted earnings per share missed the consensus estimate of 9 cents, but revenue beat the $21.83 billion that was expected.
In full-year 2020, GAAP earnings were 6 cents per share while adjusted earnings were 1 cent. Revenue of $79.61 billion represented a 16% year-over-year decline.
Industrial free cash flow for the fourth quarter was $4.37 billion, which was quite the positive surprise for investors after CEO Larry Culp had previously projected $2.5 billion for the last three months of the year. This catapulted the company's industrial free cash flow into positive territory for the full year.
By segment, Power reported a 26% year-over-year increase in orders for the quarter as Gas Power demand more than offset the decision to exit new build coal. Revenue was flat. Renewable Energy orders increased 34%, driven by Onshore Wind, though revenues declined 6%.
Aviation was a drag on results as orders declined 41% year over year and revenue dropped 35%. Health care orders dropped 15%, with revenue declining 11%, mainly due to the BioPharma business.
Culp had the following to say about the results:
"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…
Over the past year our team proved resilient, and momentum is growing across our businesses. We are in leading positions to capture opportunities in the energy transition, precision health, and the future of flight. As we continue our transformation, we remain focused on strengthening GE and delivering value for the long term."
Looking forward
Looking ahead to 2021, the company projects revenue to grow organically in the low-single-digits, with earnings per share expected to fall in the range of 15 cents to 25 cents.
General Electric also projects it will generate $2.5 billion to $4.5 billion in industrial free cash flow. However, the company did note that this assumption hinges on the recovery of the commercial aviation market accelerating in the later half of 2021, boosting its aviation segment so that revenue is flat or shows an increase year over year.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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