GE Earnings Reports Earnings Wednesday. Here's What to Expect. - Barron's

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General Electric has been one of the most closely followed and controversial stocks of the past year.

Shares rose more than 53% in 2019 after falling about 57% in 2018. What’s more, Wall Street price targets range from $5 a share—about 50% below recent levels—to $18 a share. That $13 spread is far wider than the average bull-bear spread for stocks in the Dow Jones Industrial Average and the S&P 500.

The wide range of opinions ensures that a lot of people will be focused on earnings when the General Electric (ticker: GE) reports fourth-quarter numbers before the market opens for trading on Wednesday.

Here’s what to expect, along with some recent history.

• Wall Street expects 17 cents in per share earnings from $25.7 billion in sales. Comparable earnings last year were 16 cents a share. Sales in 2019 were higher, at about $33.3 billion, but the company has been selling assets to pay down debt.

• Fourth-quarter cash flow will be more important for investors than earnings. The company is expected to generate about $2.5 billion in the fourth quarter, bringing full-year industrial free cash flow to about $1 billion.

• After current-quarter cash flow, 2020 earnings guidance will be the next important item. There is no guarantee that guidance will be provided on Wednesday. Last year, GE hosted an outlook call in March to review 2019 numbers. CEO Larry Culp, however, was relatively new at the time. Guidance could come sooner this year, but GE hasn’t confirmed its outlook plans. If guidance doesn’t accompany the earnings news release, the company will likely announce when it will provide its 2020 outlook.

•  Wall Street expects the company to earn 67 cents a share in 2020. But estimates are wide-ranging. At the low end, analysts see only 25 cents in per share earnings. At the upper end, more bullish analysts predict 77 in 2020 per share earnings.

• Along with cash flow and earnings, debt reduction and long-term-care insurance charges are other financial items to focus on.

• GE long-term-care insurance became the focus for investors, briefly, after forensic accountant Harry Markopolos said last year that the company’s accounting for legacy insurance contracts was flawed. The stock dipped in August, after the Markopolos report surfaced. The company denied the claims. Then, slowly, Wall Street became comfortable with GE accounting choices. The stock recovered. Still, lower interest rates and new claims experience could mean additional non-cash charges for the long-term-care business. GE looks at insurance reserves on an annual basis. A small charge is expected. Anything larger than $1 billion or $2 billion, however, could rattle investor confidence.

• GE made significant progress paying down debt by selling assets in 2019, including part of its health-care unit, its railroad business and Baker Hughes (BKR) stock. Management might layout new goals for debt, since initial reduction plans are about to be met.

• Aside from reported number, GE Power and GE Aviation will be the business units in focus on Wednesday.

• GE Power’s performance has been weak in recent years. Sales have fallen from a peak of about $36 billion to about $27 billion. The market for turbines that take coal-generated steam and turn it into electricity has declined as utilities move away from fossil-fuel power generation. GE cut costs in response to weakening market conditions. Investors are still unsure about what profit will look like at GE Power in coming years.

• GE Aviation, on the other hand has performed well. But it isn’t without issues, mainly because of the grounding of the Boeing 737 MAX jet. GE makes the engines for the troubled plane. GE management says the grounding is costing the company about $400 million in cash flow each quarter. That number will likely be updated on Wednesday, especially since Boeing temporarily halted MAX production in January. Before the cut, Boeing was producing 42 planes a month.

• GE Healthcare, another large business segment, gets less attention from analysts. But GE’s $20 billion deal to sell its biopharma division to Danaher (DHR) is expected to close in a couple of months. Investors will want to know that everything is on track.

There is a lot to keep track of with GE these days. The company’s turnaround is continuing. And there will be no shortage of questions–or opinions–from analysts when numbers are released.

Write to Al Root at al.root@barrons.com

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