Shares in industrial giant General Electric (GE 0.93%) fell by almost 6% midday as investors digested a management update on trading conditions in the first quarter.
In the update, management noted continued supply chain pressure across three of its four segments, namely healthcare, aviation, and renewable energy. Frankly, that's hardly surprising and pretty much in sync with what the rest of the industrial world says. GE's management expects the "challenges to persist at least through the first half of the year." Again, that's hardly new news, as management had previously signaled this, too.
So what was it that riled the market?
In all probability, the market reacted negatively to the statement that the "challenges likely present pressure" to revenue growth, profit, and free cash "through the first quarter and the first half." However, to be fair, the update noted these pressures were "included" within the full-year guidance given on the recent fourth-quarter earnings call.
However, GE tends to give very wide full-year guidance ranges that encompass a range of outcomes, so the fact that it's "included" doesn't provide much comfort.
For example, current full-year organic revenue guidance is for high single-digit growth -- a figure that implies anything from, say, 6% to 9%. The full-year earnings per share (EPS) guidance is $2.80 to $3.50, and the free cash flow guidance is $5.5 billion to $6.5 billion. There's a lot of room for error in those ranges.
Given the pressure on the first-half earnings and cash flow, it's understandable if some investors start to pencil in numbers closer to the lower end of those ranges.
CEO Larry Culp will speak at a couple of investor events on Feb. 23, and they will give him a chance to put more color on what's going on in the first quarter. Moreover, GE will hold its annual investor day on March 10. That's when Culp traditionally outlines more detailed guidance for 2022.