- Analysts estimate adjusted EPS of $0.84 vs. $0.64 for Q4 FY 2020.
- Aviation segment revenue is expected to grow at the fastest rate in more than three years.
- Companywide revenue is expected to fall slightly YOY.
General Electric Co. (GE), the conglomerate known as "GE," surprised investors upon announcing in November 2021 that it will split into three separate publicly owned companies over the next several years. The company will spin off its healthcare, renewable energy, fossil-fuel power, and digital businesses by early 2024. That will leave its aviation business as the only remaining part of GE. While the company's shares soared upon the initial announcement, they fell below the pre-announcement price within several days. The pullback may indicate continuing investor uncertainty overall about the GE, which has gone through frequent restructurings in recent years.
Investors will focus especially closely on how each of these businesses is performing when the company reports earnings for Q4 FY 2021 before market open on Jan. 25. Analysts predict that adjusted earnings per share (EPS) will increase significantly on a year-over-year (YOY) basis, while revenue will drop slightly YOY. Investors should note that GE completed a 1-8 reverse stock split last year so all EPS numbers throughout the story below are split-adjusted.
Investors are also likely to look at the performance of GE's aviation segment revenue, a key metric. This portion of GE's business is closely tied to the airline industry, which has recovered significantly after plummeting early in the pandemic. Analysts expect that aviation revenue will grow at its fastest pace in at least three years.
GE shares surged far ahead of the broader market in a rally that ended in March 2021. They then traded sideways for several months, save for a significant spike in May 2021 and a smaller one in Nov. 2021. Since then, GE stock fell toward the end of the year. It staged a small rally from late December through mid-January of 2022, but has since lost many of those gains. As of Jan. 23, GE shares have lagged behind the broader market in the past year. The company has provided 1-year trailing total returns of 9.1% as compared with 14.1% for the S&P 500.
GE Earnings History
Even prior to the start of the COVID-19 pandemic, GE posted mixed adjusted EPS performance as its management took major steps to restructure the company in an attempt to improve results. In FY 2019, the company reported two quarters of YOY earnings declined, followed by two quarters of dramatic gains. After adjusting for the stock split mentioned above, the company reported adjusted EPS of $1.60 in Q4 FY 2019. Each quarter of FY 2020 saw a significant YOY declines or losses in adjusted EPS. The company has reversed this trend during the first three quarters of FY 2021, with YOY improvement of 31.1% for Q1, 135.7% for Q2, and 18.8% for Q3 FY 2021. Analysts expect that GE will continue to improve its adjusted EPS for Q4 FY 2021, growing 31.3% YOY.
GE's revenue performance has been worse than its earnings performance. The company reported at least 10 consecutive quarters of YOY declines in revenue through Q1 FY 2021. In Q2 FY 2021, as GE's revenue climbed by 8.8% YOY. However, this trend reversed once again, as revenue fell by 0.5% YOY in Q3 FY 2021. Now, analysts expect a similarly small decline, as revenue is projected to fall by 2.2% YOY in Q4 FY 2021.
|GE Key Stats|
|Estimate for Q4 FY 2021||Q4 FY 2020||Q4 FY 2019|
|Adjusted Earnings Per Share||$0.84||$0.64||$1.60|
|Aviation Segment Revenue (B)||$6.6||$5.8||$8.9|
Source: Visible Alpha
The Key Metric
As mentioned, investors will also monitor revenue generated by GE's aviation segment, which designs and manufactures aircraft engines, components, power, and other systems for both commercial and military applications. GE's aviation business is dependent on the airline and aviation industries, both of which are highly recovery-dependent. These industries have begun to recover thanks in large part to COVID-19 vaccinations and customers being more willing to plan travel. As a result, GE's aviation revenue could spike. Further, because the company's aviation business is tied with recovery, a strong showing in this area could be evidence of a robust recovery more broadly.
GE's aviation segment revenue grew YOY in each quarter of FY 2019, reaching as high as $8.9 billion by Q4 of that year. It fell YOY in each of the following five quarters as the pandemic caused plunge in sales. However, in the two most recent quarters, Q2 and Q3 FY 2021, aviation segment revenue has begun to recover. It posted YOY gains of 10.4% and 9.7% for Q2 and Q3 FY 2021, the fastest growth since early 2019. Now, analysts estimate even faster growth in Q4 FY 2012, with revenue rising 12.9% YOY for Q4 FY 2021.
Visible Alpha. "Visible Alpha."
General Electric Co. "2020 Annual Report," Page 14.