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GE Beat Expectations In The Second Quarter. Why Isn't The Market Celebrating?

The General Electric logo appears above a trading post on the floor of the New York Stock Exchange. (Richard Drew/AP)
The General Electric logo appears above a trading post on the floor of the New York Stock Exchange. (Richard Drew/AP)

General Electric on Wednesday raised its financial outlook for the year, after beating expectations in the second quarter. Despite a promising report from the Boston-based industrial giant, however, the company's stock slumped until a modest afternoon rally reduced the loss to less than 1%.

Chief Executive Officer and Chairman Larry Culp said on an earnings call that "2019 remains a reset year for GE. We made some progress in the first quarter, and that continued in the second quarter."

The company posted adjusted earnings of $0.17 per share in the latest quarter, a nickel higher than many stock analysts predicted. Investors can now expect full-year earnings of $0.55 to $0.65 per share, GE said; the previous projection was $0.50 to $0.60 per share.

Influential analyst Stephen Tusa of JPMorgan Chase was unimpressed, telling Bloomberg, "Headline guide was raised, but we scratch our heads around why." Tusa pointed to "a material miss" in GE's aviation division, which has been hampered by worldwide groundings of Boeing's 737 Max, the jet model involved in two recent, deadly crashes. GE helps manufacture engines used on the 737 Max.

GE's financial picture has improved in the first 10 months of Culp's tenure, exemplified by a stock price that is more than 40% higher than it was at the start of the year. Longtime shareholder Peter Cohan, a venture capitalist who teaches at Babson College, wrote in Forbes Wednesday that "it's not too late to bet on GE's turnaround."

But is he buying more stock for himself?

"No, I'm definitely standing pat," Cohan said in an interview.

One reason is that GE coupled Wednesday's encouraging financial report with news that Chief Financial Officer Jamie Miller is leaving her post.

"I was alarmed because there have been reports about GE's accounting not being exactly correct," Cohan said.

GE disclosed last year that it is the subject of an SEC investigation into its accounting practices. And, in April, the company agreed to pay a $1.5 billion penalty to resolve a Justice Department allegation that a former GE subsidiary contributed to the 2008 financial crisis by misrepresenting the quality of subprime mortgages.

An announcement about the CFO's departure — less than 2 years after Miller took the job — might be a sign of trouble, Cohan said.

A GE spokeswoman said in an email that the shakeup "isn't based on any disagreement, accounting or financial matter," adding that "this is a change driven entirely by Larry's decision to continue resetting his team for the future."


Callum Borchers Reporter
Callum covered the Greater Boston business community for Bostonomix.



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