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Why Stock Market Investors Should Pay Attention to What General Electric and Raytheon Just Said

By Dan Caplinger - Apr 27, 2021 at 5:19PM

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Earnings from these industrial giants say something about the sustainability of the economic recovery.

Earnings season is hitting its peak, and companies from many different sectors of the stock market are weighing in with their results. Today, investors got the latest from a couple of powerhouses in the industrial and defense space, with both General Electric (GE -0.20%) and Raytheon Technologies (RTX 0.95%) letting shareholders know how they did to start 2021.

Many investors prefer to pay closer attention to high-growth giants in areas like technology and biotech. However, what happens with industrial stocks  could be critical to the stock market's continued gains. Below, we'll look more at GE and Raytheon, but first, here's what happened with the stock market on Tuesday.

More treading water

Major market benchmarks were little changed on Tuesday as investors seemed content to wait and see what will happen with the broader economy and with individual companies. The only index that made any significant move was the Nasdaq Composite (^IXIC 0.90%), which fell back from record levels with a modest decline. The S&P 500 (^GSPC 1.05%) and Dow Jones Industrial Average (^DJI 1.05%) were very close to flat on the day.

Index

Percentage Change

Point Change

Dow

+0.01%

+3

S&P 500

(0.02%)

(1)

Nasdaq Composite

(0.34%)

(49)

Data source: Yahoo! Finance.

GE can't bring good things to its share price

Shares of General Electric finished lower by about half a percent on Tuesday. The industrial conglomerate's first-quarter results didn't inspire huge amounts of confidence as the company is still feeling the impacts of the COVID-19 pandemic on its core business segments.

The numbers for GE weren't pretty. Revenue was down 12% year over year, with total orders falling a slightly steeper 13%. General Electric was just barely able to earn an adjusted profit of $0.03 per share, overcoming a drop of 20% in adjusted profit from the GE Industrial business.

Looking more closely at GE's business units, the renewable energy segment stood out for its ongoing progress. Revenue inched higher by 2%, but orders jumped 15%, and segment losses narrowed by 28%. By contrast, the power segment saw a 3% drop in sales on a 12% order decline, and the aviation segment bore the brunt of the pressure, with a 28% revenue decline sending segment profit down by 36% year over year. Healthcare also performed poorly.

Rows of windmills at sea.

Image source: Getty Images.

General Electric has investors excited about its prospects to cash in on greater emphasis on renewables. However, what GE really needs is a bounce in the aerospace industry, or else its aviation business could be on the ropes for a while to come.

Raytheon gains altitude

Meanwhile, shares of Raytheon finished the day higher by 2%. The defense contractor saw solid results as it consolidated its businesses following recent mergers.

Raytheon's reported revenue climbed 34% from year-ago levels -- once you remove the impact of the spin-offs of the Otis Worldwide elevator business and the Carrier Global heating, ventilation, and air conditioning unit. Raytheon saw more than $753 million in net income, reversing a year-ago loss and working out to $0.50 per share in earnings.

However, those results masked the impact of the combination of Raytheon and United Technologies. The Pratt & Whitney division suffered a roughly 25% decline in net sales, while the Collins Aerospace Systems unit saw an even steeper sales decline that lopped nearly a third of its revenue off the top line. Operating profits saw much larger drops. It took the addition of legacy Raytheon's missiles and defense, and intelligence and space segments to make up the difference.

Raytheon believes that an improving outlook for commercial air travel and a strong defense backlog will make 2021 a lot better than 2020 was. Nevertheless, the company will have to do better than it did in the first quarter in order to take full advantage of its opportunities in the industrial sector.

Investors need to understand the hole that many industrial companies dug themselves into in 2020. That could make 2021 look a lot better for those businesses that can take advantage of better conditions and recover.

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Stocks Mentioned

General Electric Company Stock Quote
General Electric Company
GE
$63.54 (-0.20%) $0.13
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$31,097.26 (1.05%) $321.83
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,825.33 (1.05%) $39.95
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$11,127.85 (0.90%) $99.11
Raytheon Technologies Corporation Stock Quote
Raytheon Technologies Corporation
RTX
$97.02 (0.95%) $0.91

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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