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GE Sees Improvement Across Businesses in Second Half of 2022

The conglomerate has offset challenges with price hikes and cost efficiencies

Boston-based industrial conglomerate General Electric Company (GE) said on Thursday, May 12, that it sees growth improving across its businesses in the second half of the year despite ongoing inflationary and supply chain disruption challenges.

Key Takeaways

  • GE said it sees growth improving in the second half of the year despite inflationary and supply chain challenges.
  • The company forecasts earnings to come in at the lower end of its guidance range amid pressure from pandemic-related lockdowns in China and Russia's war in Ukraine.
  • The conglomerate has increased its prices and improved operational efficiencies across its businesses to offset challenges.
  • GE expects 2022 FY adjusted EPS to come in between $2.80 and $3.50 with high-single-digit year-over-year revenue growth.

Last month, GE told investors that it is trending toward the low end of its full-year earnings guidance amid persistent logistical disruptions resulting from pandemic-related lockdowns in China and Russia's war in Ukraine.

To offset these challenges, the company has implemented price hikes and written price rise clauses into its service contracts with key customers and suppliers. The maker of GE jet engines also remains committed to reducing costs through sourcing alternative parts and improving efficiency throughout the entire business.

GE's Chief Financial Officer (CFO) Carolina Dybeck Happe said that implementing these measures set the company up for a better second half of the year. "Nothing is certain in an environment where so much is changing day to day. But clearly, we have a path to significant growth in the second half," she asserted at The Goldman Sachs Group, Inc.'s (GS) annual Industrials and Materials Conference.

Happe's comments reiterate CEO Lawrence Culp's remarks during GE's first-quarter conference call in April, when he told investors that operational improvements had positioned the conglomerate to reinvest in innovation and grow the business, spearheaded by a recovery in its aviation arm and ongoing strength in its healthcare segment.

2022 Financial Outlook

The company expects 2022 full-year adjusted earnings per share (EPS to come in between $2.80 and $3.50, with high-single-digit year-over-year (YOY) revenue growth. It anticipates that free cash flow (FCF) will likely be in a range between $5.5 billion and $6.5 billion for the year before exceeding $7 billion in 2023.

However, Happe cautioned that next year's cash flow figure could fall short of expectations if the company does post earnings at the lower end of its forecast. "It's going to be less of a plus, but we do have a path to $7 billion of free cash flow," she said.

GE remains on track for a major company restructure over the coming years in which it plans to form three independent businesses centered around energy, healthcare, and aviation.

Impact for Investors

The company's stock has fallen 22.43% on the year and is trading just 2.9% above its 52-week low of $71.14. By comparison, the S&P 500 index has dropped 17.54% year to date and sits 1.8% above its 12-month low. Given GE's underperformance of the broader market, the positive update about improving growth in the second half may help improve investor sentiment, potentially lifting returns in line with the major indices.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

Article Sources
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  1. Reuters. "GE Sees Improvement in Company Businesses in H2."

  2. General Electric. "GE Announces First Quarter 2022 Results."

  3. Zacks. "General Electric (GE) Q1 Earnings Top Estimates, Revenues Miss."

  4. General Electric. "GE Announces Fourth Quarter and Full Year 2021 Results."

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