Summary
- GE's Q3 Industrial revenue fell 16% Y/Y. It improved Q/Q, which could portend revenue may have bottomed.
- Industrial segment profit fell 48% Y/Y. Healthcare segment profit grew organically. It could be GE's most consistent performer going forward.
- Until Aviation rebounds, segment profit and margins will likely remain depressed.
- GE generated positive FCF, and expects positive FCF for Q4. It may not have a marked improvement on GE's balance sheet, however.
- FCF in any given quarter could be considered noise. Until the balance sheet improves, GE remains a sell.
- This idea was discussed in more depth with members of my private investing community, Shocking The Street. Get started today ยป
Source: CNBC
General Electric (GE) reported Q3 revenue of $19.4 billion, Non-GAAP EPS of $0.06 and GAAP EPS of -$0.13. The company beat on revenue and Non-GAAP EPS, but missed on GAAP EPS. The stock is up in the mid single-digit percentage range post-earnings. I had the following takeaways on the quarter.
Revenue May Have Reached A Trough
I have been bearish on GE for several years. The pandemic likely amplified the company's pain and made its industrial assets less attractive. Some believe the economy will gain long-term traction after the pandemic ends. Revenue from the company's industrial assets - Power, Renewable Energy, Aviation and Healthcare - fell 16% Y/Y.
Revenue from Power and Renewal Energy rose in the low single-digit percentage range, while Aviation and Healthcare fell by double digits. Orders were practically flat compared to the year-earlier period. This was favorable in comparison to the sharp fall in orders in Q2. It also appears to confirm management's assertion that the market appears to be stabilizing. Over the long term, the power generation market will likely be marked by oversupply and waning pricing power. The segment is over 20% of Industrial's total revenue. Meanwhile, Renewable Energy revenue rose slightly, and there may not be a material impact on the industry from COVID-19.
