GE stock rose early Tuesday as General Electric (GE) reported an unexpected rise in second-quarter profit and defying views for further cash burn. Before the open, GE stock rose, signaling a move above a key level.
Estimates: The industrial icon was expected to post a 6.5% EPS decline to 37 cents, according to FactSet, as year-earlier comparisons grew more difficult. Revenue was seen climbing 3.2% to $17.457 billion.
GE was likely to burn $806.4 million in cash, improving slightly from negative free cash flow of $880 million in Q1. General Electric’s cash flow is traditionally stronger in the second half of the year.
Results: GE earnings unexpectedly jumped to 76 cents a share. Adjusted revenue climbed to $17.88 billion. Free cash flow was $162 million, defying views for a cash burn.
Outlook: We continue to trend toward the low end of our 2022 outlook on all metrics except cash, which is lower due to timing of working capital and Renewable Energy-related orders,” CEO Lawrence Culp said in the GE earnings statement.
In April, GE guided to the low end of its earlier 2022 guidance, which includes EPS of $2.80-$3.50 and FCF (free cash flow) of $5.5 billion-$6.5 billion.
Analysts had forecast GE earnings to rise 62% to $2.77 in all of 2022, though that’s before the Q2 beat.
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Shares rose nearly 5% before the open in Tuesday’s stock market trading. GE edged up 0.25% to 68.36 on Monday, extending GE’s win streak to seven sessions after hitting 20-month lows earlier this month.
GE stock jumped 8.5% last week, closing just below a falling 10-week moving average and well below the 40-week average.
General Electric stock is on track to move above its 50-day and 10-week lines Tuesday. General Electric has rarely traded above the 10-week support level since a brief breakout last November failed.
The relative strength line for GE stock shows significant lag, a sign of underperformance vs. the S&P 500.
Historic GE Split, ‘Wall Of Worry’
On July 18, GE affirmed its historic split remains on track and named the three public companies set to emerge in 2023-24: GE Aviation, GE HealthCare and GE Vernova (housing its power and renewable energy businesses). General Electric had first announced the big breakup last fall, after years of costly restructuring efforts. Investors also fell out of love with the conglomerate business model.
Like Raytheon Technologies (RTX), the new GE will focus on aviation. Raytheon and 3M (MMM) also report early Tuesday.
Among its peers, Raytheon rose 0.4% Monday. 3M stock was almost unchanged. Roper Technologies (ROP) climbed 0.6%.
Both GE and Raytheon make jet engines for plane makers like embattled Boeing (BA), which cranked out jet orders at last week’s Farnborough International Airshow. Boeing reports early Wednesday.
In a July 13 note to clients, RBC Capital Markets analyst Deane Dray wrote that second-quarter earnings from multi-industry companies will focus on any inflection in orders or commentary.
“The Wall of Worry continues to ratchet higher, fueled by inflation fears, supply chain disruptions, worsening chip shortages, China Covid shutdowns, Russia-Ukraine war, Fed tightening, and a stronger U.S. dollar,” Dray said.
The analyst added that the possibility of recession also is moving higher. “The ISM continues to decelerate, with the June ISM (manufacturing index) still in expansion, but New Orders slipped below 50 for the first time since May 2020,” he said.
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