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Industrial conglomerate General Electric (NYSE:GE) reported Q2 CY2024 results beating Wall Street analysts' expectations, with revenue down 42.6% year on year to $9.09 billion. It made a non-GAAP profit of $1.20 per share, improving from its profit of $0.68 per share in the same quarter last year.
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General Electric (GE) Q2 CY2024 Highlights:
- Revenue: $9.09 billion vs analyst estimates of $8.55 billion (6.4% beat)
- EPS (non-GAAP): $1.20 vs analyst estimates of $0.99 (20.8% beat)
- Full year guidance raised for revenue growth, operating profit, and EPS
- Free Cash Flow of $1.10 billion, up 29.2% from the previous quarter
- Organic Revenue was up 4% year on year
- Market Capitalization: $178.2 billion
General Industrial MachineryAutomation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand for general industrial machinery companies. Those who innovate and create digitized solutions can spur sales and speed up replacement cycles, but all general industrial machinery companies are still at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Over the last five years, General Electric's revenue declined by 8% per year. This shows demand was weak, a rough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. General Electric's annualized revenue declines of 4.7% over the last two years suggest its demand continued shrinking. General Electric isn't alone in its struggles as the General Industrial Machinery industry experienced a cyclical downturn, with many similar businesses seeing lower sales at this time.
We can dig further into the company's sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, General Electric's organic revenue averaged 7% year-on-year growth. Because this number is better than its normal revenue growth, we can see that some mixture of divestitures and foreign exchange rates dampened its headline performance.
This quarter, General Electric's revenue fell 42.6% year on year to $9.09 billion but beat Wall Street's estimates by 6.4%. Looking ahead, Wall Street expects revenue to decline 36% over the next 12 months.
Operating MarginRead More Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
General Electric has managed its expenses well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10.9%. This was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it's a show of strength if they're high when gross margins are low.
Analyzing the trend in its profitability, General Electric's annual operating margin decreased by 5.5 percentage points over the last five years. Even though its margin is still high, shareholders will want to see General Electric become more profitable in the future.
This quarter, General Electric generated an operating profit margin of 20.9%, up 12.7 percentage points year on year. This increase was solid, especially since its revenue fell, and shows it was recently more efficient because it scaled down its expenses.
EPSRead MoreAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions. Sadly for General Electric, its EPS and revenue declined by 2.3% and 8% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, General Electric's low margin of safety could leave its stock price susceptible to large downswings.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. General Electric's two-year annual EPS growth of 37.6% was fantastic and topped its two-year revenue performance.
In Q2, General Electric reported EPS at $1.20, up from $0.68 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects General Electric to grow its earnings. Analysts are projecting its EPS of $3.88 in the last year to climb by 15.3% to $4.47.
Key Takeaways from General Electric's Q2 Results This was a nice 'beat and raise' quarter'. We were impressed by how General Electric beat analysts' revenue and EPS expectations this quarter. The company also raised its guidance for full year revenue growth, operating profit, and EPS. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on track. The stock traded up 3.1% to $167.85 immediately following the results.
