GE Lifts Guidance as Fortunes Improve --- Company's stock extends a rebound with a tighter focus on aviation industry.

"The lights are back on at General Electric.

The U.S. manufacturer's latest results -- and improved forecasts for the year -- underscore how far GE has pulled itself out of what once looked like a nosedive. Investors are jumping on board: The stock has been among the best-performing in the S&P 500 index over the past year, outpacing many technology giants.

GE's stock has steadily climbed as investors have focused on the company's future as an aviation play, hitting its highest levels in five years. Shares were up more than 6% Tuesday and are trading 50% above where they were in October 2018, when Larry Culp took over as CEO.

On Tuesday, GE raised its cash-flow targets for the year after reporting strong orders and improved results across most of its operations in the second quarter. The manufacturer cited rising demand for its jet engines and improved demand for its wind energy turbines.

The second-quarter results were better than Wall Street expected.

Culp emphasized how well GE has recovered from its slump. "In the first half alone, earnings have now surpassed our full-year 2022 results," he told investors Tuesday morning.

GE is a much smaller company than it was in 2018. It has sold off units that made lightbulbs and locomotives, oil-and-gas operations and most of its legacy GE Capital unit, which once rivaled the biggest banks and tipped the company into a financial squeeze. GE is on track for $61 billion in revenue this year, according to analyst estimates tracked by FactSet, compared with $113 billion in 2018.

As soon as early 2024, GE will be even smaller. It is preparing to split off its power and renewable-energy businesses as GE Vernova. Today, GE's aerospace operations and the future GE Vernova, with power and renewable energy businesses, each contribute about half the company's revenue. GE has reduced a measure of head count by 10% so far this year in preparation for the split, Chief Financial Officer, Carolina Dybeck said Tuesday.

The renewable energy and power units have been a drag on GE's profit and cash flows, erasing some of the gains in its aerospace business, which has ridden a recovery in air travel coming out of the pandemic. The renewable energy operations are still losing money, but GE has been slashing costs and is now benefiting as demand recovers -- driven in part by tax incentives adopted last year in Washington.

GE's market capitalization -- which had soared as high as $682 billion in April 2000 and tumbled as low as $48 billion at its nadir in May 2020 -- is hovering around $127 billion.

Once an American icon, GE has been eclipsed in recent years by companies it previously dwarfed, including Honeywell and RTX, the former Raytheon Technologies. While Honeywell is still larger in investors' eyes, GE's market value eclipsed RTX's on Tuesday after its rival disclosed a jet engine recall that sent RTX shares tumbling.

In the second quarter, GE posted adjusted earnings and sales that exceeded Wall Street's forecasts. The company reported free cash flow, a measure watched closely by investors, of $415 million for the quarter, up from $192 million in the second quarter of 2022.

Free cash flow has been key since GE's prior struggles prompted Culp to slash its dividend, eliminate thousands of jobs and sell off units to bolster its reserves. For the rest of 2023, GE now says free cash flow is likely to range between $4.1 billion and $4.6 billion, up from the company's previous guidance of $3.6 billion to $4.2 billion.

The company continues to clean up its balance sheet. Culp has used asset sales to pay down debt that hung over investors. The company spun off GE HealthCare Technologies earlier this year and in June generated $2.2 billion in proceeds by selling one-third of its remaining stake. GE owns about 13.5% of GE HealthCare and has said it plans to sell it off over time.

On Tuesday, the company said it would buy back all outstanding preferred shares, for about $2.8 billion, on Sept. 15, to simplify the company's balance sheet. It also booked a $1 billion charge for a Polish mortgage business left over from GE Capital. Culp wound down the lending unit, which saddled GE with liabilities, after shedding most of its remaining operations.

GE pays only a token dividend, but the company has cleaned up its balance sheet enough that GE has restarted doing something it long couldn't afford: It is repurchasing its own shares." [1]

1. GE Lifts Guidance as Fortunes Improve --- Company's stock extends a rebound with a tighter focus on aviation industry. Francis, Theo. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 26 July 2023: B.1.