General Electric shares jump as earnings top estimates, backs 2018 outlook

Key Points
  • GE reports first-quarter earnings that exceeded expectations.
  • The first quarter report offers further relief for GE, after last week's earnings restatement also held no nasty revelations.
  • GE says the power market continues to be challenging with orders down 29 percent.
I'm not impressed by GE's quarter, says pro. Here's why

General Electric reported first-quarter earnings Friday that outpaced Wall Street expectations and reaffirmed its financial outlook for the year. Shares of GE rose as high as 7 percent in early trading, before sliding to trade 3 percent up on the day.

Earnings in the latest period were fueled by strong performance by the company's aviation, health-care, renewables, transportation and corporate units, partly offset by power, oil and gas and GE Capital units.

GE said the power market continues to be challenging, with orders down 29 percent. However, it said it is making progress on costs and service execution.

In the first quarter, the company posted a net loss of 14 cents a share, which was wider than the loss of a penny a share a year ago. However, on a continuing basis, GE net income was 4 cents a share in the latest period, up from 1 cent a share year ago.

On an adjusted basis, GE earned 16 cents a share, which was higher than the 11 cents a share that analysts surveyed by Thomson Reuters were expecting.

First-quarter total revenue rose 7 percent to $28.66 billion, greater than the $27.45 billion expected by Thomson Reuters.

"The first quarter is a step forward in executing on our 2018 plan and we are seeing signs of progress in our performance," Chairman and CEO John Flannery said in a statement. "Industrial earnings, free cash flow, and margins all improved year over year. We reduced Industrial structural costs by $805 million and are on track to exceed our cost reduction goal of $2 billion in 2018."

GE's aviation, transportation and health-care divisions all saw double-digit profit growth, continuing to turn in steady results. But the conglomerate's power and oil and gas units reported profits down 38 percent and 30 percent, respectively, from last year.

"The power business is supposed to be a major driver," industrial analyst Brian Langenberg told CNBC.

Langenberg is a long-term bull on GE, with a $25 price target on the stock. But so long as these two core business divisions continue to decline, Langenberg does not see a way for GE shares to recover much of the ground lost over the past 12 months.

On the whole, the first-quarter report offers further relief for GE after last week's earnings restatement also held no nasty revelations. The restatement came largely in line with what the company announced during its fourth-quarter call with investors, with no repercussions for the expected 2018 earnings.

In the latest quarter, GE recorded reserves of $1.5 billion for potential liabilities from the Justice Department investigation in connection with alleged subprime mortgage violations for GE Capital's now defunct WMC mortgage business. Chief Financial Officer Jamie Miller clarified on a call with investors that the new reserve is based on settlement discussions GE held with the Department of Justice last month, as well as the precedent set by previous settlements by other banks. Deutsche Bank had estimated GE had $426 million set aside, while Bank of America said its model assumes about "$1 billion of cash outflow to settle" the WMC claims.

The embattled industrial conglomerate saw its shares drop to the lowest level since July 2009 as Wall Street and the media alike questioned the risks lurking within GE Capital's portfolio. The stock has slid 21 percent since January, when GE announced a review of its GE Capital insurance portfolio. There were no updates in Friday's report regarding the SEC investigation into GE's accounting practices in the GE Capital review.

Correction: GE outpaced Wall Street's revenue estimates. An earlier version of this story incorrectly compared sales from good and services to the Thomson Reuters estimates.