Key points:
- GE shares are trading at a loss of 6.1% after pointing to the lower end of its FY outlook
- Earnings beat and company split plans overshadowed by the “magnitude” of forthcoming challenges
- Inflation and supply chain hurdles are likely to continue into the second half of the year
In times of forward-looking economic uncertainty, investors are almost solely hinged on future outlook, typically glazing over current quarterly results for a more insightful image of the year to come. As inflation soars and weighs on business growth, this is a time when bulls and bears are often dictated by management’s full-year comments.
This was the case with General Electric (NYSE: GE) this morning. Although beating the Street consensus on top and bottom lines, GE pointed to the “magnitude” of challenges that the rest of the year brings, expressing that the company is on track to hit the lower end of its FY profit outlook. GE is currently trading at a loss of 6.1%.
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Looking at the overall picture, it seems positive on the surface. GE posted better-than-expected Q1 earnings, confirmed its FY outlook and reassures investors that long-standing plans to split the group into 3 separate companies remains on track. However, at such time of precarious economics, almost all weight is hinged on future outlook; so ‘on-track’ for the lower end is a red flag for buyers.
The company posted non-GAAP Q1 earnings of $0.24 per share, flat to 2021 but still ahead of the $0.19 per share Street estimate. Revenue also edged past estimates, coming in at $17B compared to predictions of $16.9B.
Management specifically noted that supply chain hurdles and cost pressures are likely to continue into the second half of the year, citing the “magnitude” of these challenges will pressure profit and cash flow growth. Bearing this in mind, GE issued FY guidance towards the lower end of the $2.80 to $3.50 region.
CEO Larry Culp looks towards the forthcoming group split:
“We remain on track to launch three independent, investment-grade companies with leading positions in growing, critical sectors, well positioned to create long-term value.”
This could be the main inspiration for on-the-fence investors. Real, “long-term value” may be created through the group split, where focus and direct innovation should create clearer routes to consistent growth margins.
