General Electric (GE) beat earnings estimates Tuesday, but missed on revenue as its aviation unit weighed. The industrial giant backed 2021 financial guidance. GE stock fell in early trade after briefly clearing a buy point Monday. Raytheon Technologies (RTX) also posted mixed results but hiked full-year outlook, while boosting its stock buybacks after hiking its dividend a day earlier. Raytheon stock rose early in buy range.
Estimates: Wall Street expects GE earnings of two cents a share, down 60%, according to Zacks Investment Research. Revenue is seen falling 14% to $17.58 billion.
Results: General Electric earned three cents a share on sales of $17.12 billion. Among GE’s business segments, revenue fell 28% in aviation; 3% in power and 9% in health care. However, its nascent renewable energy segment grew revenue 2%.
Industrial free cash flow (FCF) came in at negative $800 million. But excluding the sale of a biopharma unit, GE grew industrial FCF $1.7 billion year over year.
“I am proud of the GE team’s solid first quarter results, despite a still difficult environment for aviation,” CEO Larry Culp said in a statement.
Outlook: On Tuesday, management said it expects Q2 industrial FCF to show similar improvement as Q1. General Electric reaffirmed 2021 financial guidance that it had provided in March. GE estimates FCF of $2.5 billion-$4.5 billion from industrial operations for the year, after turning cash-positive a year ahead of schedule in 2020. It is guiding 2021 organic industrial revenue growth in the low single digits. It foresees 2021 EPS of 15 cents-25 cents, with profit margins expanding 250-plus basis points.
After a long restructuring, GE runs four main industrial businesses: aviation, power, health care and renewable energy. It also has a shrinking financial services businesses, known as GE Capital.
Earlier on March 10, General Electric had said its 2021 outlook assumes aviation revenue “being flat to up year over year,” based on commercial aviation’s recovery “accelerating in the second half of 2021” amid global vaccine rollouts. Since then, the coronavirus pandemic has exploded afresh in parts of the world such as India, setting off a fresh wave of travel restrictions and lockdowns.
Key jet-engine customer Boeing (BA) has also grounded the 737 Max again. A GE joint venture is the sole supplier of Leap engines for the troubled jet, which was grounded last year after two fatal flights.
For 2021, GE said March 10 that it expects “continued strength” in its health care segment, which makes ventilators for coronavirus patients among other things. It expects further improvement in its power-turbine business, after a terrible slump. Its nascent wind energy business should get a boost from President Joe Biden’s climate agenda.
Shares of General Electric fell 2.7% to 13.21 in premarket stock market trading. GE stock is below a 13.93 cup-with-handle buy point after finding support at the 50-day line, according to MarketSmith chart analysis. On Monday, General Electric stock hit 14 intraday, briefly moving into a buy zone.
The relative strength line for GE stock rallied strongly in the latter half of 2020 and into early 2021. The RS line, the blue line in the chart shown, is just below March highs. A rising RS line means a stock is outperforming the S&P 500 index.
Honeywell (HON), which beat Q1 earnings views and raised full-year sales guidance Friday, rose 0.6%. Honeywell’s Q1 aerospace sales were down 22%, amid ongoing challenges in the commercial aviation market.
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Estimates: Analysts forecast Raytheon earnings of 88 cents a share, down 51%, as revenue falls 16% to $15.38 billion.
Results: Raytheon earned 90 cents per share on sales of $15.3 billion. Among business segments, revenue fell 32% at Collins Aerospace and 25% at Pratt & Whitney. Raytheon Intelligence and Space posted sales of $3.77 billion and Raytheon Missiles & Defense had sales of $3.79 billion. The aviation giant generated $336 million in free cash flow (FCF) in the quarter.
“With our strong defense backlog and continued recovery in commercial air travel, we are well positioned to deliver profitable growth and return cash to drive significant value for shareowners,” CEO Greg Hayes said in a statement.
Outlook: Raytheon raised the low end of full-year outlook. For 2021, it now expects sales of $63.9 billion-$65.4 billion, up from $63.4 billion-$65.4 billion prior. It foresees adjusted EPS of $3.50-$3.70, up from $3.40-$3.70. Analysts see EPS of $3.64 on revenue of $65.1 billion.
For Q2, Raytheon forecast adjusted EPS of 90 cents-95 cents and $15.5 billion-$16.0 billion in sales. Analysts were expecting EPS of 80 cents and $15.72 billion in sales, Zacks says.
The company also announced that share repurchases will total at least $2 billion in 2021, up from $1.5 billion earlier, a day after hiking its dividend by 7% to 51 cents a share. Finally, it affirmed FCF outlook of $4.5 billion.
Shares gained 1.8% to 82.48. Raytheon stock topped an 80.16 flat-base entry Friday. It’s still in a buy zone, which tops out at 84.17.
Along with a dividend increase Monday, Raytheon announced that Hayes will add the chairman role to his title. Outgoing chair Thomas Kennedy will retire June 1 after six years on the board.
In April 2020, Raytheon stock emerged as an aviation pure-play after Raytheon Company merged with the former United Technologies’ aviation businesses. Those businesses include Pratt & Whitney and Collins Aerospace Systems.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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