30 July 2020

GE Stock Tumbles Despite Q2 Revenue Beat

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News shaping
the markets today

     

What’s happening: Shares of General Electric plummeted on Wednesday despite the Boston, Massachusetts-based company reporting upbeat revenues for the second quarter.

What happened: Although General Electric’s business was battered by the covid-19 outbreak, the company managed to exceed revenue and free cash flow expectations for the second quarter.

While the pandemic delivered a massive blow, which continued through May, GE witnessed “some early signs of improvement in June and July,” CEO Larry Culp said during the earnings call. Investor sentiment was hurt, however, by the CEO’s comments on the company’s prospects in a continued challenging macroeconomic environment.

How were the results: The diversified industrial conglomerate reported a decline in revenue and a wider net loss for the second quarter.

  • Revenues fell a sharp 24% to $17.75 billion, although the figure exceeded the consensus view of $17.01 billion.
  • GE reported a net loss of $2.18 billion, or 26 cents per share, versus a loss of $61 million, or 1 cent per share, in the same quarter last year.
  • Adjusted loss came in at 15 cents per share, versus a profit of 11 cents per share in the year-ago quarter. The figure was worse than the consensus estimate of a loss of 10 cents per share.

Why it matters: General Electric, which has a presence in the power, renewable energy, healthcare and aviation sectors, said that its business had deteriorated “across the board” in the second quarter.

While power revenues declined 11% to $4.16 billion, healthcare revenues shrank 21% to $3.89 billion. Aviation revenues plunged a whopping 44% to $4.38 billion.

GE took several measures to curtain costs and preserve cash. In fact, its industrial free cash flows were much better than expected, with significantly better-than-expected cash burn in the quarter. The company also said that it had reduced its near-term liquidity needs by $10.5 billion.

GE announced plans to sell its stake Baker Hughes over the next three years and use the proceeds to pay down debt.

Investors were dissatisfied by GE’s wider-than-expected loss in the second quarter. However, the real concerns were triggered by the company’s comments of the aviation business taking several years to recover from the impact of the pandemic. In recent years, aviation had been the company’s most attractive business.

How shares responded: Shares of GE tumbled 4.4% to close at a three-week low of $6.59 on Wednesday, reversing a premarket surge of 4.5%. The stock has lost 3% over the past month and has declined by a whopping 49% over the previous six months.

What to watch: With GE witnessing some improvement in June and July, investors will look for more news related to a rebound in the company’s businesses. While expectations from the aviation business remain low, investors will hope to see some improvement in the power and healthcare segments.

The Markets Today

     

European stocks will be in focus today, ahead of a basket of economic reports scheduled for release later in the day.

Context: European stocks struggled for direction, closing mixed on Wednesday, following the release of earnings from various major banks and ahead of the Federal Reserve announcement.

Details: Investor sentiment has been subdued as Europe witnesses what could be a second wave of infections. China, too, has reported new cases. The rise in confirmed cases and death toll in several countries in Asia and the US added to the concerns of a global economic recovery being much slower than was initially anticipated.

Meanwhile, several major banks reported earnings on Wednesday. Investors remained cautions as most banks were forced to record substantial charges related to the economic crisis.

Shares of Deutsche Bank fell more than 3% on Wednesday after the German bank reported a loss for the second quarter. Banco Santander’s stock tumbled around 5% after the Spanish bank posted an unexpected loss for the latest quarter.

Shares of Barclays lost more than 6% after the lender reported a significant decline in its pretax profit in the first half of 2020 after recording a £3.74 billion credit impairment charge.

After gaining 0.4% on Tuesday, the Stoxx Europe 600 index declined by 0.1% yesterday. London’s FTSE 100 rose 0.04% and French CAC 40 gained 0.6%. Meanwhile, Germany’s DAX 30 index and Spain’s IBEX 35 fell by 0.1% and 0.6%, respectively.

What to watch: Investors await various economic reports from the Eurozone, including consumer confidence, economic sentiment indicator, industry confidence indicator, services confidence indicator, consumer inflation expectations and unemployment rate.

Consumer confidence in the Eurozone is expected to decline to -15.0 in July, while the economic sentiment indicator is likely to surge to 81. Analysts expect the industry confidence indicator to improve to -17 in July, from the previous reading of -21.7. Unemployment rate is projected to increase to 7.7% in June, from May’s reading of 7.4%.

Investors will continue to assess the covid-19 figures, with the total number of cases reaching almost 167 million globally.

Other Markets: US indices trading closed higher on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.61%, 1.24% and 1.35%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

UAE’s money supply M3, Germany’s unemployment rate, unemployment change, annual inflation rate and gross domestic product, UK’s Nationwide house price index and car production, France’s producer prices, Spain’s inflation rate and business confidence, Switzerland’s business confidence, Italy's unemployment rate, Canada’s average weekly earnings as well as the US GDP growth rate, initial jobless claims and EIA’s natural gas stockpiles.
 

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