Shares of General Electric jumped by more than 8% in premarket trading Tuesday after the company reported better-than-expected industrial free cash flow for the fourth quarter and a rosy outlook for this year.
The company closed the fourth quarter with $4.37 billion in industrial free cash flow, a surprise after CEO Larry Culp projected at least $2.5 billion for the last three months of the year. The strong quarter pushed the company's industrial free cash flow into positive territory for the year.
GE also projected it would generate between $2.5 billion and $4.5 billion in industrial free cash flow for 2021.
The company also reported a revenue for the fourth quarter ended Dec. 31 that slightly beat analyst expectations while its profits fell short of estimates as the industrial giant continues to weather the coronavirus pandemic.
Here's how GE performed compared with what Wall Street expected, based on average analysts' estimates compiled by Refinitiv:
- Adjusted EPS: 8 cents versus 9 cents expected.
- Revenue: $21.93 billion vs $21.83 billion
The company's better-than-anticipated revenue for the quarter was down 16% compared with the same period a year ago. On an unadjusted basis, the company reported diluted net earnings per share of 27 cents.
"As 2020 progressed, we significantly improved GE's profitability and cash performance despite a still-difficult macro environment," Culp said in a statement. "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 129-year-old industrial conglomerate makes everything from jet engines to gas turbines and provides some financial services. It no longer manufactures appliances and lightbulbs, which made it a household name in the 20th century, as the company slims down and focuses on turning profits.
The company's strong fourth-quarter performance was driven largely by a rise in orders in its Power and Renewable Energy businesses, which offset declines in Aviation and Healthcare.
GE's Power business reported a 26% year-over-year rise in orders to $5.62 billion for the quarter, driven largely by strong sales of gas power equipment. The company was able to lower fixed costs in its gas power business by 12%, allowing it to deliver positive cash flow for 2020, one year ahead of schedule.
The renewable energy segment reported $6.29 billion in orders, up 34% from a year ago. Revenue in the segment fell about 6% from a year ago to $4.44 billion.
Orders in the beleaguered Aviation unit, once the company's cash cow, fell 41% compared with a year ago as the pandemic wrecked air travel through 2020. GE noted in its 2021 outlook that it "assumes Aviation revenue being flat to up year-over-year, which is dependent on the Commercial Aviation market recovery accelerating in the second half of 2021 as well as the timing of aircraft deliveries."
The health-care segment reported $4.98 billion in orders, down about 15% compared with a year ago. But GE attributed the year-over-year decline mostly to the sale of its biopharma business in March.
"Over the past year our team proved resilient, and momentum is growing across our businesses," Culp said. "We are in leading positions to capture opportunities in the energy transition, precision health, and the future of flight."
GE's financial services arm, GE Capital, reported a net loss of almost $200 million, driven largely by the company's $200 million settlement with the Securities and Exchange Commission for allegedly misleading investors.
The stock has been on a tear in recent months, sparked by a surprise third-quarter profit reported in October that sent the stock surging by more than 70% over the fourth quarter. Positive Covid-19 vaccine news, which bodes well for the conglomerate's beleaguered aviation sector, has sustained the rise.
And some investors are bullish on the company's turnaround under Culp, especially as he forecasts positive cash flow for 2021. The firm has continued to pay down its debt during the pandemic and cut costs through, for example, layoffs in its aviation business.
This story is developing. Check back here for updates.
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