General Electric Misses On Earnings By Wide Margin

General Electric (NYSE:GE) missed Wall Street’s expectations on earnings in the quarter that ended Sept. 30. The company said that profits were weighed down by restructuring costs and weak performance at its power and oil and gas businesses. GE shares sank after the company reported earnings.

The company’s earnings tumbled in the latest quarter. It’s profit was $1.8 billion, a 10 percent drop from the $1.9 billion it earned during the same quarter of last year. Financial analysts surveyed by S&P Global Market Intelligence expected profit of $3.6 billion, on average.

The company’s quarterly earnings of 29 cents per share was three cents lower than the same period last year. The S&P analyst survey forecast earnings per share of 49 cents.

John Flannery, the company’s chairman and CEO, noted that “This was a very challenging quarter,” but also said that “a majority of our businesses had solid earnings performance.” Flannery became CEO less than three months ago after working for GE for 30 years. He succeeded Jeff Immelt, who had run the company for nearly 16 years.

Steep restructuring costs, taxes, and reduced revenue from power services is expected to amount to a $7 billion hit to the company’s cash flow this year. GE’s cash flow from industrial operating activities came in about $1 billion below expectations in the first quarter.

While GE’s cash flow is naturally weighted toward the back half of the year, its year-to-date cash flow is at $1.6 billion, putting its 2017 goal of $12 billion to $14 billion way out of reach. The company is now forecasting its cash flow will be about $7 billion for the whole year.

GE reduced its profit outlook for 2017 to between $1.05 and $1.10 per share, considerably lower than the 1.60 to $1.70 per share range forecast in its previous financial guidance. Analysts surveyed by S&P had predicted profit guidance of $1.47 per share.

The company announced it will pare $20 billion in businesses within the next two years to make its operations more efficient. Flannery said in an earnings call with investors, “We will have a simpler, more focused portfolio. To date, we’ve identified $20 billion-plus of assets that we will exit in the next 1 to 2 years.” Flannery also said, “Everything in the company has been up for examination. Every stone turned. No sacred cows.”

GE also appears to be reducing its share buyback allocation to well short of its given range of $11 billion to $13 billion. It repurchased only $3.7 billion of shares so far this year.

Next month, Flannery is slated to deliver a more in-depth assessment of the business, along with the results of a portfolio review that could yield divestitures. Flannery said the company is expected to have a call on its dividend on November 13.

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