Summary
- The "good news" is that GE only reported $2.1 billion in negative cash flow last quarter.
- The U.K. is pursuing a billion dollar suit against the company.
- Aviation is the key to GE, and that key has gone missing.
As a buy and hold investor, it is anathema to me to sell a stock. I devote a great deal of due diligence before committing to an investment, and history teaches that quality companies are like Mark Twain: the reports of their deaths are greatly exaggerated.
I've witnessed supposedly moribund firms rise from the ashes. Therefore, it was with a degree of trepidation that I provided my first and only sell article in May. That piece focused on General Electric (GE), and since then the stock is a shadow image of the larger market.
By that I mean that the shares have fallen roughly 12% while the S&P rose around 12%.
The picture for investors has not improved, and my investigations uncovered additional reasons for concern. The UK unleashed a government agency intent on billing the company for $1 billion. Forecasts for airline traffic have deteriorated and provide a picture of a prolonged U shaped recovery, while governments around the globe prohibit travel, and economies worldwide spiral downward.
Two of the company's businesses bring in little in terms of profits.
Here is an example of what passes for good news from a GE perspective: GE only experienced $2.1 billion in negative free cash flow last quarter.
Q2 Results... YIKES!
Just when some thought things couldn't get worse, GE reported a Q2 loss of $0.26 per share. The company's adjusted loss per share, which accounts for one-time items, hit -$0.15 versus a $0.16 profit in Q2 2019.
GE's overall revenues declined 24% YoY with industrial revenue falling 20% on an organic basis. Even with a $600 million tailwind from the sales of ventilators and other COVID-19 related products, GE Healthcare suffered revenue declines. Total orders for the firm declined 38 percent.
Clearly this was a tough quarter. … the macro environment could deteriorate further before recovering."
CEO Larry Culp, Q2 earnings conference call
As I stated previously, the good news was that the company had $2.1 billion in negative cash flow versus a previously projected negative $3.5 billion to $4.5 billion.
The worst of the lot was that the creme de la creme of the company's segments, aviation, suffered a 44% drop in revenue YoY.
