GE shares rose early Tuesday as General Electric ( GE ) reported an unexpected rise in second-quarter profit, defying views of further cash burn. Before the open, GE shares rose, signaling a move above a key level.
Estimates: The industrial icon was expected to post a 6.5% EPS decline to 37 cents, according to FactSet, as year-over-year comparisons became more difficult. Revenue was seen up 3.2% to $17.457 billion.
GE would likely burn through $806.4 million in cash, which improved from negative free cash flow of $880 million in the first quarter. General Electric’s cash flow is traditionally stronger in the second half of the year.
Results: GE earnings unexpectedly rose to 76 cents per share. Adjusted income rose to $17.88 billion. Free cash flow was $162 million, defying views of a cash burn.
Outlook: We continue to trend toward the low end of our 2022 outlook on all metrics except cash, which is lower due to the timing of working capital and renewable energy-related orders,” CEO Lawrence Culp said in GE’s earnings report.
In April, GE guided to the low end of its previous 2022 guidance, which included EPS of $2.80-$3.50 and FCF (free cash flow) of $5.5 billion-$6.5 billion.
Analysts had forecast GE earnings to rise 62% to $2.77 in full 2022, though that’s ahead of the Q2 pace.
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Shares rose nearly 5% before the open in Tuesday’s trading. GE rose 0.25% to 68.36 on Monday, extending GE’s winning streak to seven sessions after hitting a 20-month low earlier this month.
GE stock jumped 8.5% last week, closing just below a bearish 10-week moving average and well below its 40-week average.
General Electric stock is on track to move above its 50-day and 10-week lines on Tuesday. General Electric has rarely traded above its 10-week support level since a brief breakout last November failed.
The relative strength line for GE stock is lagging significantly, a sign of underperformance compared to the S&P 500.
Historic GE Split, ‘Wall Of Worry’
On July 18, GE confirmed that the historic split remains on track and named the three public companies to emerge in 2023-24: GE Aviation, GE HealthCare and GE Vernova (which houses the power and renewables businesses). General Electric had first announced the big break last autumn, after years of costly restructuring. Investors also fell in love with the conglomerate’s business model.
As Raytheon Technologies (RTX), the new GE will focus on aviation. Raytheon and 3M (MMM) also reports early Tuesday.
Among its peers, Raytheon rose 0.4% on Monday. 3M shares were almost unchanged. Roper Technologies (ROP) climbed 0.6%.
Both GE and Raytheon make jet engines for embattled aircraft manufacturers Boeing (BA), which issued jet orders at last week’s Farnborough International Airshow. Boeing reports this early Wednesday.
In a July 13 note to clients, RBC Capital Markets analyst Deane Dray wrote that second-quarter earnings from multi-industry companies will focus on any inflection in orders or comments.
“The Wall of Worry continues to climb higher, driven by inflation fears, supply chain disruptions, worsening chip shortages, China Covid shutdowns, the Russia-Ukraine war, Fed tightening and a stronger US dollar,” Dray said.
The analyst added that the possibility of recession is also moving higher. “ISM continues to slow, with the June ISM (manufacturing index) still expanding, but New Orders falling below 50 for the first time since May 2020,” he said.
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