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Why Shares of General Electric Fell 11.1% in July

By John Bromels – Aug 9, 2020 at 4:44PM

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The promised turnaround isn't coming soon enough for Wall Street.

What happened

Shares of General Electric (GE 0.43%) slid 11.1% in July, according to data from S&P Global Market Intelligence. It was yet another setback for the beaten-down industrial conglomerate.

The stock finished out the month at $6.07 a share, almost a 25-year low. Although the stock has rebounded somewhat in August, it's still down more than 40% year to date.

An Edison-style light bulb shattering.

Image source: Getty Images.

So what

The entire drop in GE's shares came after the company reported Q2 2020 earnings on July 29. The numbers exceeded expectations -- particularly the company's cash burn of "just" $2.1 billion. CEO Larry Culp had been guiding for a cash burn of $3.5 billion to $4.5 billion for the quarter. However, the overall picture wasn't pretty, and investors sold off the stock.

Among other dismal data, the industrial conglomerate's once-powerful aviation division, which primarily manufactures and services aircraft engines, saw its profit margin turn negative, while orders tumbled 56% year over year. Revenue, orders, and profits were down in all of GE's divisions; only healthcare was able to turn a profit, because of increased demand for ventilators and other products related to coronavirus treatments. 

Now what

Culp has officially stated that he expects GE to become industrial free cash flow positive in 2021. Keep in mind that doesn't necessarily mean the company as a whole will be free cash flow positive, because of ongoing liabilities associated with GE Capital, the company's financial business. He gave no word on when the company might return to profitability, and on the earnings call, he even sidestepped a question about whether healthcare's cash flow was "consistent with profits."

You really can't blame Culp and his management team's inability to turn the company around in 2020 as previously hoped: it's not as if any of them could have seen COVID-19 coming. However, with the dividend now yielding a paltry 0.6%, and profitability likely to be years away, it doesn't really look as if there's much point in tying up your money in GE shares when there are plenty of better industrial stocks to consider.

John Bromels owns shares of General Electric. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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