General Electric surges 14% on strong earnings and increased cash forecast

Brendan McDermid/Reuters

• General Electric reported third-quarter earnings Wednesday that beat expectations and included an increased outlook for cash flow that exceeded analyst expectations.
• Shares gained as much as 14% in early trading on the news.
• Watch General Electric trade live on Markets Insider.

General Electric gained after reporting third-quarter earnings that beat analyst expectations. The industrial conglomerate also raised its 2019 cash-flow forecast for a second straight quarter.

Shares rose as much as 14% on Wednesday on the report.

Here's what the company reported, versus what analysts surveyed by Bloomberg expected:

• Earnings per share: 15 cents reported versus 12 cents (expected)
• Revenue: $23.36 billion reported versus $28.77 billion (expected)

GE's industrial free cash flow was $650 million for the quarter. Free cash flow is what's left over after a company pays for operations and capital expenditures, and so it is closely watched as a sign that a company is using money efficiently.

The company said it expects to generate free cash flow in a range from flat to $2 billion in 2019, up from its previous estimate range of negative $1 billion to positive $1 billion. The increased outlook comes amid a time of global uncertainty for manufacturers.

"We are raising our Industrial free cash flow outlook again even with external headwinds from the 737 MAX and tariffs," said Larry Culp, CEO of GE, in a statement.

The company's power unit showed continuing signs of weakness, reporting revenue of $3.9 billion, down 14% from the previous year. Orders for turbines and other power products declined 30%. The division recorded a $144 million loss for the quarter, a solid improvement from last year's $676 million loss.

Other units fared better, even with headwinds. GE's aviation unit reported $8.1 billion in revenue, up 8% from last year, even though the Boeing 737 Max is still grounded. GE makes engines for the 737 Max, and Culp has said that the company faces a cash headwind of $400 million each quarter the jet is out of service, according to Bloomberg.

But GE is still a company in the midst of a tricky turnaround. The company also reported a consolidated net loss of $9.5 billion during the third quarter. While this is an improvement from the $22.8 billion loss in the same period last year, it still shows trouble in the company's bottom line.

In addition, the adjusted earnings GE reported didn't take into account an $8.7 billion non-cash charge from ceding majority ownership of Baker Hughes, an oilfield company.

GE has 10 "buy" ratings, 10 "hold" ratings, and four "sell" ratings from analysts who cover the company. The average price target is $10.38, according to Bloomberg data.

GE is up 35% year-to-date.

Read more: A Wall Street chief strategist thinks investors are acting like a recession is already here - and explains why you should buy the stocks unfairly neglected by worried traders

Markets Insider

Get the latest General Electric stock price here.