North America

Earnings Preview: General Electric Q3 2017 (GE)

By: Craig Bowles

Overview

General Electric Company (GE) is slated to report 3Q 2017 earnings before the bell on Friday, October 20th. Results are typically released at 6:30 a.m. ET and will be followed with a conference call webcast available through GE Investor Relations at 8:30 a.m. GE’s earnings are often viewed as a barometer on the overall health of the U.S. and global economy. Therefore, GE has the potential to influence broader markets, including the index futures, currencies, and other broad market indicators, particularly if the results are far outside the band of consensus estimates. This is the most complicated earnings release in the U.S. The Non-GAAP revenue value that analysts model for normally requires a calculation from numbers only found in the “presentation” document.

Outliers & Strategy

Key measures:

  • Adjusted Earnings Per Share (EPS): (calculated using verticals + horizontals in presentation document but sometimes included in the press release and/or earnings supplement) Analyst consensus is $0.49 (range $0.47 to $0.51). (Source: Yahoo! Finance) Consensus was $0.54 three months ago.
  • Revenues: (verticals + horizontals in presentation document have to be calculated for the Non-GAAP measure but total revenue is available in the release) Analyst consensus expectations are for $32.59 bln (range $28.87 bln to $35.01 bln).
  • Adjusted Earnings Per Share (EPS) Guidance (FY 2017): Guidance is currently $1.60 to $1.70. Analyst consensus is for $1.53. (Analysts have been reducing estimates the week ahead of the earnings release.)
  • Price/Sales of 1.7 compares to the 5-year average of 1.9. Price/Book of 2.7 compares to the 5-year average of 2.2. The stock yields 4.2% compared to the 5-year average 3.1%.
  • Analysts view GE with 9 (11 two qtrs. ago) Buy, 8 Hold, and 2 Sell ratings. (source: MarketBeat.com)
  • Insiders bought 15,166 shares over the last three months but sold a net 383,385 shares in the past year. (source: NASDAQ.com) On April 10, 2015, GE approved a $50 billion stock buyback and added $4 billion on October 21, 2016. GE has reduced its float by almost 1.9B shares in the past five years, according to Seeking Alpha.
  • GE shares have a 1-day average price change on earnings of 1.90%. Options are pricing in an implied move of 3.73% off earnings.

Recent News

  • 10/10: Baird notes, “It appears clients now expect a dividend cut by General Electric; the current yield is 4% and the average multi-industry yield is more like 2.3%.” GE responds, “The dividend remains a top priority for the company,” according to a post at Barron’s.com.
  • 10/06: General Electric announced that Jeffrey Immelt was retiring as chairman three months ahead of schedule, CFO Jeffrey Bornstein is also leaving, as are two vice chairs, Beth Comstock and John Rice, according to a post at Bloomberg.com.
  • 10/05: Credit Suisse reiterated an Outperform rating for General Electric based on their hopes that 2018 will be the floor for the company’s earnings and expectations for more clarity on plans to increase cash conversion in businesses after aggressive restructuring, according to a post at Barron’s.com.
  • 09/25: Power grids maker ABB is buying General Electric’s Industrial Solutions business for $2.6 billion, according to a post at Reuters.com.
  • 08/14: Warren Buffet’s Berkshire Hathaway released its 13F filing, which revealed the company’s decision to sell all of its 10.6 million shares of General Electric, according to a post at Barron’s.com.

Summary

Chairman Jeffrey Immelt retired three months ahead of schedule. Several others in top management are also leaving, so new Chmn/CEO John Flannery appears to be ushering in some major changes. Skepticism about GE’s intent to maintain its more than 4% dividend yield is growing. Analysts are relatively neutral on the company. Insiders bought some shares the past two quarters. GE beat estimates by an average of 2c the last four quarters. Estimize consensus for an adjusted EPS of $0.51 on revenue of $31.699 bln compares to analyst consensus of $0.49 on revenue of $32.59 bln. 2017 Any change in guidance would be important, as well. The stock has struggled after beating estimates in recent quarters partly because of the confusion around which numbers to compare to analyst estimates.

 

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