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GE Earnings: Smashes Through Our Expectations, but Long-Term Outlook Unchanged

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GE Aerospace
(GE)

Narrow-moat-rated General Electric’s GE first-quarter results were superb, materially outpacing our expectations. We were hoping to see over $13.1 billion of adjusted revenue (sale of equipment and services but excluding insurance). GE cruised past this result with $13.7 billion of adjusted revenue, a 17% year-on-year increase. More impressive, we were expecting about $0.00 of adjusted EPS, and GE posted $0.27, meaningfully over our estimate and almost double that of FactSet consensus, as we’ve been modeling most of our earnings growth in the fourth quarter. This was an exceptional result, as adjusted EPS during the quarter rose by $0.36 from last year’s first quarter. Perhaps most encouragingly, GE posted its first positive free cash flow figure in the first quarter since 2015, long before CEO Larry Culp took the helm.

Even so, nothing in GE’s latest print materially alters our long-term view of the stock. We raise our fair value estimate to $110 from $108 due exclusively to time value of money. Management raised the bottom end of both its adjusted EPS (now $1.70-$2.00) and free cash flow guidance (now $3.6 billion-$4.2 billion), though we were already modeling toward the top end of both ranges at $1.95 and $4.1 billion, respectively. We think there’s probably some conservatism baked into these numbers, but given the uncertain macroeconomic environment and most of the year remaining, we hesitate to move ahead of the company’s guide, for now.

That said, demand remains very robust. In fact, it’s growing. GE’s total book/bill (orders divided by revenue) rose to an outstanding 1.29, with renewable demand leading the way with a 1.9 ratio. Clearly, the Inflation Reduction Act has promoted demand.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Joshua Aguilar

Sector Director
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Joshua Aguilar is the director of resources equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Aguilar joined Morningstar in 2016 as an associate on the financials team, and he was promoted to analyst on the industrials team in 2018 and to senior analyst in 2022. He has served as associates coordinator since 2021 and led Morningstar's diversity efforts as DEI co-chair since 2020. Aguilar has been a mentor to several associates on their paths to becoming analysts. He also has hosted a Morningstar earnings town hall, participated in analyzing Morningstar stock, and been a strong contributor through both client interactions and his General Electric stock call. Aguilar co-authored an Outstanding Research Achievement-winning piece with colleague Kris Inton on CEO compensation in 2021. He also has taught Morningstar's model to new hires for many years as part of the valuation committee.

Before joining Morningstar, Aguilar was a practicing business transactional attorney in Florida. He graduated magna cum laude with a bachelor's degree in political science and criminology from the University of Florida. He also has a Master of Business Administration from Rollins College and a Juris Doctor from Wake Forest University.

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