Restructuring Will Be In Focus During GE Q4 2015 Earnings

  •  GE is due to report fourth quarter 2015 earnings on 22nd January 2016 before market open.
  • GE's earnings are expected to continue declining as the company continues to undertake drastic restructuring.
  • Investors are, however, likely to remain interested in GE stock due to the company's dividend hikes and copious share buybacks.

General Electric (NYSE:GE) is due to report fourth quarter 2015 earnings on 22nd January 2016 before market open. The consensus in Wall Street is for GE to report non-GAAP EPS of $0.50 down from $0.56 that the company reported during the previous year's comparable quarter. The company has met or exceeded earnings estimates for the last four consecutive quarters and the GE stock has an average strong buy rating by the Street.

GE-2

GE Quarterly Earnings Surprise History

Fiscal
Quarter End
Date
Reported
Earnings
Per Share
Consensus
EPS* Forecast
%
Surprise
Sep2015 10/16/2015 0.32 0.26 23.08
Jun2015 07/17/2015 0.31 0.31 Met
Mar2015 04/17/2015 0.31 0.3 3.33
Dec2014 01/23/2015 0.56 0.55 1.82

Source: NASDAQ

After remaining on the sidelines while the rest of the market rallied strongly in 2014, GE stock bounced back in 2015 by gaining 24.3% as the company’s restructuring took shape. GE has been trying to return to its core as an industrial powerhouse by divesting its finance arm, GE Capital, as well as some of its non-core businesses. GE recently announced that its fiance arm divestitures in 2015 totaled $157B and the company’s restructuring efforts remain well ahead of schedule. GE Capital accounted for 42% of the company’s earnings in 2014 but General Electric aims to cut that down to just 10% in 2016, a whole year ahead of its previous target of 2017.
GE stock chart

Source: GE Stock Price Data by amigobulls.com

GE has been selling some of its non-core businesses. The company recently finalized a deal to sell its appliances business to China’ Qingdao Haier for $5.4B. GE’s earlier bid to sell the business to Electrolux for $3.3B had fallen through after the Department of Justice scuttled it on antitrust grounds. Now that has turned out to be a blessing in disguise after Haier paid 64% more for the business than what Electrolux had offered.

But the biggest reason why GE investors are excited about the company’s restructuring is that it’s using proceeds from its divestitures to reward shareholders in the form of higher dividends and copious stock buybacks. GE paid ~$7B in dividends to shareholders during the first three quarters of 2015, and is expected to announce another $2B payout for the fourth quarter bringing up the year’s total to $9B.

GE is a classic dividend aristocrat having paid dividends every year since the company went public and only cut it twice during the Great Depression and the financial crisis of 2009. The company’s impeccable dividend history is one of the reasons why investors such as Warren Buffet love GE stock. GE stock yields a healthy 3.23%.

GE-1

Source: Market Realist

GE bought back shares worth $21B through its Synchrony Financial deal in 2015 meaning the company will have given back a total of $30B to shareholders in 2015 after announcing fourth quarter dividends. The company expects to return $90B to shareholders by 2018, mainly through stock buybacks. General Electric rolled out a huge share buyback program worth $50B in April 2015. That will reduce GE’s outstanding stock by ~20% and provide a nice boost to earnings.

Investor Takeaway

GE’s restructuring has taken a toll on the company’s bottom line--the company is on course to report its first full year of losses in more than 20 years having lost $12.4B through the first three quarters. But investors have remained happy since the company is returning a lot of money to shareholders in the form of higher dividends and share buybacks. This should keep the GE stock hot in 2016.

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  • I do not have any business relationship with the companies mentioned in this post.
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