The worst may be over for industrial conglomerate General Electric Company (NYSE: GE). The company reported a fiscal 2018 first-quarter net loss that is wider than the similar period last year. However, adjusted earnings and revenues were better than analysts’ estimates. Additionally, the performance of individual divisions discussed below indicates that the stock, which closed at $14.52, would remain bullish in the short-term.
The Boston-based company reported fiscal 2018 first-quarter revenues of $28.66 billion, up 7% from $26.88 billion in the similar period last year. GE’s oil-field equipment business merged with Baker Hughes last July. This aided GE in posting an impressive revenue.
Net loss for the quarter ended March 2018 widened to $1.184 billion, or $0.14 per share, from $117 million or $0.01 per share last year. The loss includes a one-time charge of $1.5 billion set aside for the possible liabilities from the now-defunct mortgage unit, WMC, which is under federal investigation. Excluding charges, adjusted earnings were $1.42 billion, or $0.16 per share in 1Q18, compared with $1.224 billion, or $0.14 per share in 1Q17. The Zacks Consensus estimate called for earnings of $0.11 per share on revenues of $27.88 billion.
Segment-wise, power revenues plunged 9% y-o-y to $7.22 billion. Furthermore, net profit fell 38% to $273 million.
Renewable energy revenues were $1.65 billion, down 7% from last year. However, a 70bps increase in profit margin to 4.7% led to a 10% increase in the net profit to $77 million in 1Q18.
The Oil & Gas unit performed exceedingly well, with a 74% increase in the y-o-y revenues to $5.385 billion. However, the 500 bps decrease in profit margin to 3.4% resulted in a 30% y-o-y decline in profit to $181 million.
Aviation revenues were $7.112 billion in 1Q18, compared with $6.673 billion in the corresponding quarter last year. A 340 bps increase in profit margin to 22.5% resulted in a 26% increase in the net profit to $1.603 billion.
Healthcare revenues increased 9% to $4.702 billion. Correspondingly, Healthcare profits increased 11% to $735 million.
The Transportation segment fared poorly with an 11% decrease in revenue to $872 million. However, a 520 bps increase in profit margin to 14.9% resulted in a profit of $130 million.
The Lighting segment recorded revenues of $456 million, almost flat compared to the previous year.
Nicholas Heymann, an analyst at William Blair, said “the company’s decision to set aside the $1.5 billion was an encouraging step to contain the financial fallout from the investigation. Risk is receding, not rising.”
Even though GE’s Power business did not fare well in the quarter, a turnaround is expected in the second half of 2018, according to JP Morgan analyst Stephen Tusa.
GE delivered $800 million of cost savings in the quarter and is expected to exceed its goal of $2 billion in cost savings for 2018. For fiscal 2018, GE continues to expect consolidated EPS in the range of $1 to $1.07 and adjusted industrial free cash flow in the range of $6 to $7 billion. Analysts are expecting 95 cents a share as earnings for FY18. Therefore, better than anticipated fiscal 2018 first-quarter results and reaffirmation of FY18 EPS is expected to keep the stock bullish in the short-term.
The stock of GE has bounced off major support at 12.50. The next major resistance is at 16.50. The stochastic oscillator is rising towards the bullish zone. Therefore, we are expecting the stock to rally further.
To gain from the uptrend, we are planning to invest in a call option as long as two conditions are satisfied: the stock should be trading near $14 and the option contract offered by a binary broker is valid until May 2nd.
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