General Electric Co. (GE) shares tumbled 2.9 percent—its lowest level in 19 months—after the company reported lower-then-expected earnings on Friday.
The Friday selloff is the eighth consecutive decline of GE shares on the day the results were reported, and the 2.9 percent drop was the biggest one-day slip post-result since it plummeted 4.1 percent in April 2013.
Long-term investors found the decline surprising. According to MarketWatch, the blue-chip giant has lost about $170 billion in market value under CEO Jeff Immelt’s leadership, which is already more than the value of 14 components under the Dow Jones Industrial Average. The 18 percent year-to-date decline makes it Dow’s weakest stock for this year.
This is the company’s final quarterly earnings report with Jeff Immelt at the helm. He will be replaced by John Flannery as CEO on Aug. 1.
The company posted an adjusted profit of 28 cents per share, against estimates of 25 cents per share. But EPS is down from 51 cents in the previous year’s second quarter. Revenue dropped 13.1 percent to $29.56 billion from $33.49 billion last year.
Revenue for organic industrial business segment rose 2 percent, while the power segment grew 5 percent to $6.97 billion. Revenue for energy and healthcare segments also surged 17 percent at $2.46 billion and 4 percent at $4.7 billion, respectively. But the oil and gas segments fell 3 percent to $3.11 billion, while the aviation segment was steady at $6.53 billion. The company’s transportation segment also slumped 14 percent at $1.07 billion.
The company’s industrial cash flow was $1.5 billion, against a $1.6 billion negative cash flow in the previous quarter. Industrial orders also climbed 6 percent to $28.3 billion.
“We’ve reduced our Industrial structural costs year-to-date by $670 million and we are on track to meet or exceed our $1 billion cost reduction target for the year,” Immelt said in the earnings statement. “The global scale of the company, along with our ability to innovate industry-leading products and services, will help us navigate the current environment and unlock productivity across our business and markets.”
According to Immelt, recovery for the oil and gas market had been slower and more volatile than expected. As customers have been delaying their purchases, he expects that results for the legacy business segment to be lower than expected, MarketWatch reports.
Immelt also said that the company is planning for a “down market” for its power segment, which posted the largest revenue. “Given our outlook on oil and gas, we are trending to the bottom end of the range of $1.60 to $1.70 EPS for the year,” he said.
Jim Corridore, analyst at CFRA, downgraded GE stock from “buy” to “hold,” cutting price target for the stock from $36 to $27. “With oil and gas weakness overshadowing the strength in aerospace and health, we now think there are better investment choices with likely higher EPS growth prospects in the industrial sector,” Corridore wrote in his note to clients.
RBC Capital Markets was concerned about the quality of GE’s second-quarter earnings. “GE’s headline 2Q17 operating EPS of $0.28 was nicely above our estimate and consensus of $0.25. That said, underlying quality of earnings was mixed, with the beat driven almost entirely by lower corporate expense and restructuring.”
Some investors are also hoping for improvements after Flannery takes over GE next month. When the change of leadership was announced on June 12, the company’s stock rose 3.6 percent. However, Jack DeGan, a GE shareholder and chief investment officer at Harbor Advisory, told CNBC’s “Squawk Box” that the new CEO might be less ambitious.
“Usually, when a new CEO comes in, especially after a long-standing previous CEO, they want to lower the bar because that’s where their starting point begins,” DeGan said.