General Electric’s stock surged to an 11-month high Tuesday before trimming some gains, as investors celebrated a beat in Q4 free cash flow, while shaking off a third profit miss in the past four quarters. Investors have since upped their expectations for GE after the stock’s record one-quarter rally of 73.4% during the Q4.
GE said its industrial free cash flow totaled $4.4 billion during Q4, compared with guidance previously provided by CEO Larry Culp of “at least $2.5 billion.” Even so, FCF weakness in GE’s Aviation business, the big beat was backed by $2.9 billion in FCF delivered by the Healthcare business, and as Power and Renewables continued to make progress.
In 2020, free cash flow was +$600 million, compared with a consensus of -$1.19 billion. Culp mentioned on the post-earnings conference call with analysts that the positive result for the year came “one year ahead of commitments.” More importantly for GE investors was the FCF outlook for 2021, which BofA Securities analyst Andrew Obin believes could be the “key metric” that determines the stock’s fate.
For 2021, GE said it forecasts FCF of $2.5 billion to $4.5 billion. That was better than the guidance range Obin was anticipating, of $1.5 billion to $3.5 billion. “The fourth quarter marked a strong free cash flow finish to a challenging year, reflecting the results of better operations as well as strong and improving orders in Power and Renewable Energy,” Culp said. “Over the past year, our team proved resilient, and momentum is growing across our businesses.”
GE went on to report Q4 net income that rose to $2.44 billion, or $2.27 a share, from $538 million, or 6 cents a share, in the year-ago period. Excluding non recurring items, adjusted earnings per share fell to 8 cents from 20 cents, below a consensus of 9 cents. Revenue tumbled 16% to $21.93 billion, but was above a consensus of $21.75 billion.
Among GE’s business tranches, Aviation revenue dipped 35% to $5.85 billion to top the consensus of $5.66 billion; Power revenue was pretty much flat at $5.38 billion, beating expectations of $5.18 billion; Healthcare revenue was down 11% to $4.82 billion, beating the consensus of $4.70 billion; and Renewable Energy revenue fell 6% to $4.44 billion, just short of the expected $4.48 billion.
As far as GE’s plan to fully monetize its Baker Hughes stake goes, GE said its receiving additional proceeds of about $700 million in January. That leaves its stake at 30.1% of Baker Hughes’ shares outstanding, which at current stock prices would be valued at about $6.6 billion.
And for GE’s financial position, CFO Carolina Happe mentioned it continues to improve in the face of an uncertain external environment, as the company ended 2020 with about $37 billion of total cash. Happe said that GE reduced debt by $16 billion throughout the year, and marked down its pension deficit by $2.3 billion.
GE’s stock has soared 57.4% over the past three months, but has slipped 0.8% over the past 12 months. In comparison, the SPDR Industrial Select Sector exchange-traded fund [$XLI] has gained 5.1% over the past 12 months while the S&P 500 has advanced 17.2%.