Credit: Shutterstock photoGeneral Electric ( GE ) slashed its outlook for profits and cash flow Friday after missing Wall Street's expectations for quarterly earnings by a mile, prompting more warnings that its dividend could be at risk.
[ibd-display-video id=2386810 width=50 float=left autostart=true] The industrial conglomerate now sees full-year EPS at $1.05-$1.10, vs. a previous view of $1.60-$1.70, and well below consensus forecasts of $1.53. Cash flow from operating activities is now estimated at about $7 billion, vs. the prior view of $12 billion-$14 billion.
"The lower cash flow target will likely bolster the market's skepticism over whether GE can sustain its dividend at its current level," said Deane Dray at RBC Capital Markets, warning that the pressure will be on for GE "to cut its $0.96 dividend (4.1% yield)."
Even prior to GE's Q3 earnings report, a slew of analysts warned of a potential dividend cut .
New CEO John Flannery said Friday that he will address the dividend next month during a presentation, when his overall strategy will also be unveiled.
Ahead of the much-anticipated event, the new chief executive signaled more than $2 billion in cost cuts next year, double an earlier target, as well as some $20 billion in asset sales in the next few years.
In Q3, GE's EPS fell 9% to 29 cents, while analysts expected an increase to 49 cents, even as revenue grew 14% to $33.47 billion, beating estimates for $31.9 billion. Industrial cash flow from operating activity plunged 82% to $465 million or 40% to $1.74 billion after excluding deal taxes and pension funding, due to weakness in the power business.
"The results are unacceptable to say the least," Flannery said in an earnings call early Friday. He warned that there would be "no sacred cows" at GE as he starts a new round of restructurings.
But shares staged a dramatic reversal, as investors warmed up to Flannery's vow that "everything is on the table" and that no "sacred cows" will be spared what is now expected to be a major top-to-bottom restructuring. GE finished 1.1% higher at 23.83 on the stock market today , after sinking as much as 6.3% during the regular trading day and 8.5% in premarket trading .
GE stock saw a spike in short selling Friday, according to S3 Partners.
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Jim Corridore at CFRA Research cut his 12-month price target on GE to 24 from 27 and his 2018 EPS estimate by 20 cents to $1.60, citing challenges related to the oil-and-gas and power units. "We think GE has industry-leading assets, but would wait for some restructuring results before adding to positions," he said.
Other key GE metrics showed signs of weakness as well:
- Organic industrial revenue, which filters out certain noise such as mergers and divestitures, dipped 1% to $26.9 billion.
- Revenue declined in power, transportation and lighting, with a notable 4% fall to $8.68 billion in the flagship power segment. Revenue rose in renewable energy, aviation, health care and oil-and-gas, most notably jumping 81% to $5.365 billion in oil-and-gas on the merger with Baker Hughes ( BHGE ).
- Industrial operating margin shrank to 11.8% from 14%.
- Orders rose 11% to $29.8 billion, though organic orders were flat, and backlog grew 3% to $328 billion.
Meanwhile, Honeywell 's ( HON ) Q3 EPS rose 5% to $1.75, matching views, on revenue of $10.12 billion, better than views for $10.06 billion.
Shares closed up 1.2% at 145.35, still in buy range after clearing a 140.31 entry point from a flat base in late September.
Honeywell confirmed last week that it would split two noncore units into separate publicly traded companies by the end of 2018.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
