Summary
- GE is taking a scalpel to Aviation, cutting more jobs, as the outlook for the unit is below expectations.
- Aviation represents 28% of Industrial segment profits. It may not be the catalyst it once was.
- Improving profit margins at Aviation could be GE's biggest opportunity to justify the run up in its share price.
- It could take years for global passenger demand or aircraft engine orders to return to 2019 levels. GE remains a hold.
- This idea was discussed in more depth with members of my private investing community, Shocking The Street. Get started today »
Source: Barron's
General Electric's (NYSE:GE) stock has been on a tear of late. Since its Q3 earnings report, the stock has bounced over 40%. The company has gained a bevy of bulls on Wall Street betting GE will benefit from a rebound in the economy. Management recently announced more job cuts in its key Aviation segment:
General Electric has warned employees that more job cuts are coming to its jet engine business despite the promise of a COVID-19 vaccine on the horizon, WSJ reports, citing an internal video message.
More jobs will be lost but the cuts will be more focused than two rounds of layoffs earlier this year that ultimately eliminated 25% of the division's 52K global employees, new GE Aviation boss John Slattery reportedly said, without specifying the number of jobs that would be cut.
"The business revenue and profit projections not only for this year but next year and the year after are fundamentally lower than what we originally budgeted or expected," Slattery said. "Overall, particularly in our commercial sector, we'll be a smaller business and our cost structure simply must align."
Aviation was expected to be a moat that could help GE rebound from missteps at Power. COVID-19 tripped up Aviation in Q1 when the unit reported a double-digit percentage decline in revenue. Management slashed jobs in response to the free fall in global passenger demand and uncertainty over when the pandemic will end. Jobs cuts at Aviation would have previously been considered anathema by GE bulls.
