GE Q3 FY2021 Earnings Report Preview: What to Look For

General Electric Co. (GE) stock has dramatically outperformed the broader market during the past year amid the COVID-19 pandemic and a large-scale restructuring of the company. After posting mostly plunging revenue and falling earnings since early 2020, GE reported a profit amid rising revenue in the second quarter of this year. A big driver was the rebound in its aviation business.

Investors will look at whether GE can reverse this trend when the company reports earnings for Q3 FY 2021 before market open on Oct. 26. Analysts predict adjusted earnings per share (EPS) to increase even as revenue slightly declines on a year-over-year (YOY) basis.

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 sharply from pandemic lows. Analysts expect aviation revenue to climb at its fastest rate in 11 quarters.

GE shares broke ahead of the broader market in late October 2020 and mounted a protracted rally through early March 2021. Since that time, GE shares have largely traded sideways, except for a brief spike to a new high in late May 2021, Consequently, GE's outperformance gap has moderately narrowed as the broader market has risen over the past year. Despite that, GE shares have provided a 1-year trailing total return of 69.0% compared with 31.6% for the S&P 500.

GE Earnings History

GE has struggled to post YOY adjusted EPS growth throughout most of the pandemic. The company reported YOY declines for five consecutive quarters beginning in Q1 FY 2020, including the first negative adjusted EPS in several quarters in Q2 FY 2020. That trend reversed in Q2 FY 2021, when GE reported a profit on an adjusted EPS basis. Now, analysts expect adjusted EPS to increase 20% year-over-year (YOY) to $0.48 a share. Still that's a fraction of the profit the company posted before the pandemic in Q3 FY 2019. A special note that GE went through a 1:8 reverse stock split in August 2021. All of our adjusted EPS figures in this story reflect adjustments made to include the current share count.

The company's revenue performance has largely mirrored GE's adjusted EPS trends in recent quarters. GE revenue declined by a wide margin YOY beginning in Q1 FY 2020 and continued to decline YOY for five consecutive quarters. Q2 FY 2021 reversed that trend as revenue rose sharply from Q2 FY 2020, GE's lowest revenue point during the pandemic. Analysts predict that this improvement will be short-lived, with GE revenue dropping slightly in Q3 FY 2021.

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 grew revenue YOY for each quarter of FY 2018 and FY 2019 before beginning a long stretch of declining quarters in Q1 FY 2020. The steepest drop YOY took place in Q2 FY 2020, by 44.3%, with the subsequent three quarters seeing progressively narrower declines. In Q2 FY 2021, this trend reversed, with revenue climbing by 10.4%. For Q3 2021, analysts expect YOY growth of 13.6% for aviation revenue. This would mark the fastest pace of growth since Q4 FY 2018. Still, the $5.6 billion in revenue for Q3 would be far below the $8.1 billion reported for Q3 FY 2019, before the pandemic.