General Electric Company (GE) announced 22Q2 revenues of $18.6 billion, up 2.4% year-over-year, a GAAP loss per share of $0.59, two cents worse than 21Q2’s $0.57 loss, and non-GAAP EPS of $0.78, above 21Q2’s $0.22. I had anticipated a GAAP loss of $0.16 per share and non-GAAP EPS of $0.55.
The much wider difference between GAAP and non-GAAP earnings was due entirely to the $1.5 billion of mostly unrealized losses recorded on GE’s equity holdings in Baker Hughes (BKR) and AerCap Holdings NV (AER). Excluding that item, the company posted substantially higher profit margins on the modest increase in revenues. Adjusted profit margin, a non-GAAP measure, improved from 5.6% in 21Q2 to 9.4% in 22Q2.
Substantially all of the improvement in profitability was due to a rebound in GE Aerospace’s segment profit, which surged from $176 million in 22Q1 to $1.15 billion in 22Q2. That was driven primarily by a recovery in services, where revenues grew by 47% to $4.4 billion.
Management characterized the quarter as strong, with growth in orders, revenue and segment profit. Nevertheless, the company still faces significant supply chain and inflation headwinds across all of its businesses, which has slowed production and delayed deliveries. As a result, it has only just reaffirmed its adjusted EPS guidance at the low end of the $2.80-$3.50 range.
Assuming that both GE and the global economy are able to work through these headwinds successfully, I am maintaining my strong buy rating and price target of $90. The stock has rebounded sharply off from its intraday low of $60 on July 14, but is nearing overbought territory, so it could consolidate its gains for a while, before resuming its recovery.
This is a summary of my recent update report on General Electric Company (GE). To obtain a copy of the full report, reach out to me by phone or by email.
July 27, 2022
Stephen P. Percoco
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