What happened

Shares of General Electric (GE -0.53%) traded up more than 7% on Wednesday morning after the industry conglomerate reported fourth-quarter earnings that came in above expectations and provided stronger-than-expected 2020 free cash flow guidance. GE is still in recovery mode, but the company's outlook has improved significantly since August, when a critic described it as "a bigger fraud than Enron."

So what

General Electric on Wednesday morning reported adjusted fourth-quarter earnings of $0.21 per share on revenue of $26.2 billion, ahead of the consensus estimate for $0.18 per share in earnings on sales of $25.57 billion. Aviation led the way, with revenue up 6% year over year and orders up 22%, while renewable energy revenue was up 2% and healthcare and power revenue were flat.

Aviation margins in the quarter, at 23%, were 2.6% above the fourth quarter of 2019, and power margins at 5.6% were more than double the average of the prior quarters of 2019.

A plane engine mounted to a wing in flight over farmland.

A GE9X engine, part of the company's powerful aviation unit. Image source: General Electric.

For the year, GE recorded total revenue of $95.2 billion, down 1.9% from 2018, but industrial segment organic revenue was up 5.5% from the year prior. And General Electric finished out the year with $2.3 billion in industrial free cash flow, well above the company's guidance for between $0 and $2 billion in free cash flow.

General Electric is on its third CEO since 2017, plagued in recent years by financial weakness made worse by poor acquisitions and mismanagement. The current CEO, Larry Culp, took over in October 2018 with a mandate to divest underperforming businesses and pay down debt.

The company has slowly stabilized under Culp's leadership, but still has its share of critics. Last summer Bernie Madoff whistleblower Harry Markopolos suggested GE's issues are far worse than the company has disclosed, charges GE and Culp refuted.

Culp in a statement announcing earnings notes that GE had been able to reduce net debt by $7 billion in 2019 and had made progress streamlining operations.

"We're proud of our progress in 2019, including decisive actions to reduce our leverage and strengthen our businesses," Culp said. "Our work continues, but GE's committed team, exceptional technology, and global network make me more confident than ever that we can deliver."

Now what

GE said that it expects adjusted earnings of between $0.50 and $0.60 per share in 2020, and industrial cash flow of between $2 billion and $4 billion. The earnings projection is a bit shy of the consensus $0.66 per share number going into earnings, but cash flow is significantly above the $1.2 billion expectation.

There are a lot of unknowns heading into the year, most notably when Boeing's 737 MAX will fly again and how much the grounding of the jet will affect GE's airplane engine unit.

GE is far from regaining the growth stock status it enjoyed in the 1990s, and Culp and his team still have a lot of work to do to get the power business back up and running and pay down debt. But these results go a long way toward making the argument that the worst is in the past for General Electric, and that's enough to get Wall Street excited on Wednesday.