Financial markets continue to melt up, and General Electric (GE) has risen with it. GE is up over 50% Y/Y. Bulls who bought in at the lows earlier in the year have been richly rewarded. CEO Larry Culp has pared debt as promised. However, it has come at a cost. The company has hived off assets and will forego future cash flow from divested properties. The jury is still out on whether Culp’s restructuring efforts have been successful.

The company’s Q3 2019 results were a pleasant surprise as core GE (NewCo) – Aviation, Power Systems, and Renewable Energy – showed signs of life. NewCo’s revenue grew 3% Y/Y and segment profits spiked by over 30%:

GE cut losses at Power, which was the main driver of the improvement in segment profits. The company also reported free cash flow (“FCF”) of $650 million during the quarter, an improvement over the -$1.0 billion reported in Q2. This was a major catalyst for the stock.

Revenue from Aviation grew 8% Y/Y. Segment profits only grew 3% as segment profit margins fell by 100 basis points. Air-freight volume is in decline, particularly in international markets due to slowing trade. In my opinion, it could be only a matter of time before Aviation’s growth in revenue and segment profits falter. I highly doubt this scenario is priced into the stock. Read more:

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