GE Earnings Analysis: On the Right Side of Rock Bottom?

In November 2018, GE CEO Larry Culp told David Faber in a CNBC interview with respect to finding a bottom in the Power business: "We will know when we’re there."

GE shares were up more than 10% following the company’s Q4 earnings, prompting the question: are we there? The overall company-level analysis pointed to much-needed stabilization, but Q&A commentary on the Power segment still lacked a concrete path to improvement.

Please note: This in no way represents investment advice. All transcript text provided by S&P Global Market Intelligence.

We analyzed GE’s Q4 earnings call leveraging the Amenity text analytics platform, and highlight two key takeaways:

1. No News is Good News for Now, but Still Weak Relative to Peers

The outlook commentary lacked new negatives and helped drive a slight uptick in the Amenity Score to -4 compared to -10 in 3Q (see Exhibit 1). In addition our NLP platform showed that there was a significantly more constructive tone in the earnings call than in the 11/12/18 CNBC interview. However, on an absolute basis GE is still looking up at most of its Industrial peers (see Exhibit 2).

  • Outlook Commentary, GE (1/31/19):

"We expect industrial organic revenue growth to be up low to mid-single digits on the back of a significant ramp in renewables and continued strength in Aviation and Healthcare. Power will be down in a flat to slightly down market in 2019. We also expect our industrial operating margins to expand."

Exhibit 1: Amenity Score of Earnings Calls are Less Negative Than Recent History
Amenity Score: GE Quarterly Trend

Exhibit 2: GE Q4 Earnings Still Screens More Negative Than its Peers
Portfolio View: GE vs Peers

2. Power: Plenty of Questions, Few Concrete Answers

GE’s Power segment has been a well-documented sore spot for several quarters. Consequently, much of the Q&A was dominated by discussion of the outlook for Power and when it might bottom. Amenity’s Deception Analysis flagged several answers about Power that were vague, indirect, and far from conclusive as to when results would bottom. A recent MarketWatch article highlighted similar commentary leveraging Amenity's NLP platform on GE's 3Q earnings call.

  • Power Commentary, GE (1/31/19):

"So clearly, we’re at a break even from our P&L perspective, absent of the charges, a lot of work to do here and as we have better visibility and more conviction around those improvements, we’ll be back and we’ll be back here soon with respect to how that plays out in ’19 and ’20."

"So as we mentioned before, we had adjustments for utilization, some on pricing pressure,and then just standard cost updates."

"Having said that, we wanted to make sure we had a realistic view of how we saw the portfolio when we went through these reviews."

"I would say we are in the very early innings relative to the turnaround at Power. I don’t know how else to frame it."

"With respect to the margin pressure, generally, I should say pricing pressure, these are very competitive markets that have a lot of capacity. So I think that dynamic will continue as we go through the next couple of years and until the market levels out and until we see the capacity leveling out as well."

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Transcript text provided by S&P Global Market Intelligence.

Copyright ©2019. All rights reserved.

January 31, 2019

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