GE Q1 FY2022 Earnings Report Preview: What to Look For

General Electric Co. (GE) has posted declining annual revenue for four straight years as the company has struggled through a series of major restructurings. Those declines were aggravated when GE's revenue took an especially big hit in 2020, plunging 20.4%, due to the economic shock triggered by the COVID-19 pandemic. Now the company is facing labor shortages, inflation, and other supply chain issues that are likely to weigh on its financial performance.

Investors will be watching to see how these forces are impacting GE's business when the company reports earnings on April 26, 2022 for Q1 FY 2022. Analysts expect GE's adjusted earnings per share (EPS) to fall as revenue slightly declines compared to the year-ago quarter.

Investors will also be watching GE's aviation revenue. This key metric indicates how much revenue the company generates from its aviation segment, which is closely tied to the health of the passenger airline industry. GE's segment designs and produces aircraft engines, engine components, mechanical aircraft systems, and more. Analysts expect aviation revenue to rise at its fastest pace in more than three years.

Shares of GE have underperformed the broader market over the past year. After briefly outperforming the market from late May 2021 through early June 2021, the stock began to underperform. Its performance gap with the rest of the market especially began to widen around mid-November. GE's shares have provided a total return of -16.7%, well below the S&P 500's total return of 3.3%.

GE Earnings History

GE reported mixed results in its Q4 FY 2021 earnings report. Adjusted EPS beat analyst estimates, rising 58.6% compared to the year-ago quarter. However, revenue missed expectations and were down 3.5% year over year (YOY). It was the 13th quarter of declining revenue out of the past 14 quarters. The company said that its revenue during the quarter was partly affected by supply chain issues. However, orders for the year were up double digits, which should support future growth.

In Q3 FY 2021, GE's earnings beat consensus estimates while revenue missed. Adjusted EPS rose 50.0% YOY, marking the third straight quarter of rising earnings after four consecutive quarters of declines. Revenue fell 0.5% YOY, a disappointing result after the previous quarter's growth, which was the first quarter of revenue growth since Q2 FY 2018. GE said that its aviation business, which was severely impacted by the COVID-19 pandemic, was showing continued signs of recovery.

Analysts expect a significant weakening of GE's earnings performance in Q1 FY 2022. Adjusted EPS is expected to decline 23.9% YOY, which would be the first decline since the final quarter of FY 2020. Revenue is expected to fall 0.3% YOY, marking the third straight quarter of declines and the 14th in the past 15 quarters. For full-year FY 2022, analysts expect adjusted EPS to increase 52.4% on annual revenue growth of 4.6%. It would be the first year of expanding revenue in at least five years.

^{Source: Visible Alpha}

The Key Metric

As mentioned above, investors will also be focused on GE's aviation revenue. GE's aviation segment designs and produces both commercial and military aircraft engines, integrated engine components, electric power, and mechanical aircraft systems. It also provides aftermarket services to support these products. Aviation is an especially important aspect of GE's business for a number of reasons. First, it is the segment that generates the largest share of the company's revenue and profits. Second, GE plans to spin off both its healthcare and energy businesses over the next several years in order to focus on aviation. Third, GE's aviation segment has been the most heavily impacted by the COVID-19 pandemic. The pandemic brought global travel demand to a near halt in 2020 and only slowly began to recover throughout 2021. That adverse shock to travel demand caused a weakening of demand for commercial aircraft.

That demand shock spilled over into demand for GE's own aviation products, causing its aviation revenue to plummet throughout FY 2020 and into the first quarter of FY 2021. The company's aviation revenue, which grew by 7.6% in FY 2019, sank 33.0% in FY 2020. It fell a further 3.3% in FY 2021 due entirely to a 27.6% YOY decline recorded in the first quarter of that year. GE's aviation revenue finally started to grow again in the second quarter, rising 10.4% YOY. It continued to grow but at a decelerating pace throughout the second half of the year. Aviation revenue rose 9.7% in Q3 FY 2021 and then growth slowed to 4.0% in Q4. In Q1 FY 2022, analysts expect GE's aviation revenue to expand 14.6% YOY, which would be the fastest pace since the final quarter of FY 2018. However, the amount of revenue generated would still be dramatically below levels reached prior to the pandemic. For full-year FY 2022, analysts are currently forecasting aviation revenue to grow 21.2%, its fastest pace in at least five years.