By Tomi Kilgore, MarketWatch
Shares of General Electric Co. sank Wednesday in volatile trading after the diversified industrial conglomerate said it suffered “across the board” weakness in the second quarter, and indicated its aviation business could take years to recover from the effects of the COVID-19 pandemic.
The stock /zigman2/quotes/208495069/composite GE -2.41% took a 4.4% dive to close at three-week low $6.59. That reversed a gain of as much as 1.6% just moments after the open, and a premarket rally of as much as 4.5% minutes after second-quarter results were released. Trading volume swelled to 146.7 million shares, about double full-day average of 73.2 million shares.
The selloff marks the biggest one-day, post-earnings decline since it tumbled 8.8% on Oct. 30, 2018, after GE reported third-quarter 2018 results.
Back then, the Power business was GE’s biggest problem, and Aviation was its darling. In the latest quarter, Power has continued to show improvement and Aviation continued to be the biggest problem, as the grounding of the Boeing Co.’s /zigman2/quotes/208579720/composite BA -3.81% 737 MAX planes and the COVID-19 pandemic weighed heavily.
GE shares have tumbled 41% year to date, while the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.88% has slipped 7%.
On Wednesday, GE reported second-quarter net losses that widened to $2.18 billion, or 26 cents a share, from $61 million, or 1 cent a share, and an adjusted loss of 15 cents a share, which missed the FactSet loss consensus of 10 cents a share.
“Now as we expected, our financial performance declined across the board in the quarter,” said Chief Executive Larry Culp, according to a FactSet transcript of GE’s post-earnings conference call with analysts, as the COVID-19 pandemic took a heavy toll.
Meanwhile, what may have given the stock an early lift was that overall revenue fell 24% to $17.75 billion, but beat expectations of $17.01 billion. And free cash flow (FCF) was negative $2.1 billion, which was much better than expectations of negative $3.3 billion. And Chief Executive Larry Culp reiterated his view that FCF would return to positive in 2021.
In addition, GE said it was launching a program to sell off its stake in Baker Hughes Co. /zigman2/quotes/205323712/composite BKR -0.13% over the next three years, and planned to use the proceeds to pay down debt. GE said it owned 377.4 million shares of Baker Hughes, which at current stock prices would be valued at about $5.9 billion.
Culp said on the conference call that GE’s overall financial performance started to see signs of improvement in June and July.
For specifically the Aviation business, however, Culp said the drivers that were really hurting the business in March — airlines conserving cash, not flying the planes they have, limiting maintenance spend and deferring orders — “are still relevant today.”
“We’re planning for a steep market decline this year, and likely a slow multiyear recovery,” Culp said.
GE Aviation revenue fell 44% to $4.38 in the second quarter, missing the FactSet consensus of $4.62 billion. In comparison, Raytheon Technologies Corp. /zigman2/quotes/203237915/composite RTX -0.73% reported on Tuesday that sales at its Collins Aerospace business fell 35% to $4.30 billion, above expectations of $3.56 billion, according to FactSet. And Honeywell International Inc. /zigman2/quotes/205583690/composite HON -0.96% reported on July 24 that aerospace sales dropped 28% to $2.54 billion but beat expectations of $2.41 billion.