General Electric's (GE 8.28%) 2022 results matter. An obvious statement, but it has even more resonance than usual because the company is preparing to begin a breakup in early 2023. As such, management needs to ensure the company and its businesses are in good financial shape to ensure a smooth transition. With this in mind, let's consider what investors can expect from GE's second quarter on July 26th and the rest of the year. 

Maintaining full-year guidance will be a plus

The subtitle says it all. Having already told investors that "We're trending toward the low end of that range" when discussing full-year guidance on the earnings call, investors will likely be expecting the worst when CEO Larry Culp updates investors on the second-quarter call. That's because many of the reasons for weakness in the first quarter (war in Ukraine, COVID-19 restrictions in China, and ongoing global supply chain issues) continued into the second quarter. 

That said, it would be a significant plus if GE somehow managed to stay on track to meet its full-year guidance in the second quarter. The guidance given in the investor-day presentation in March called for an adjusted profit of $6 billion to $7 billion and free cash flow (FCF) of $5.5 billion to $6.5 billion. Merely meeting the $5.5 billion target implies a price-to-FCF multiple of just 12.7 times FCF at the end of 2022, based on the current market cap of $70.1 billion. 

That's an extremely cheap valuation multiple for the stock. Let's put it this way: Flip the numbers upside down, and GE would be generating 7.8% of its market capitalization in free cash -- in theory, at least it could be returned to shareholders via share buybacks or dividends. 

Meeting guidance also matters because GE plans to begin its breakup by spinning off GE Healthcare in early 2023 (with GE Power and GE Renewable Energy combined and then spun off in early 2024). Rightly or wrongly, the market will likely price the GE Healthcare spinoff based on current trading conditions. As such, GE needs to demonstrate it's on track with the assumptions made when it launched the breakup plan.

Can General Electric maintain guidance?

Unfortunately, there's pressure building on GE's full-year guidance and all four of its industrial segments. 

GE Healthcare is a bit of a mixed bag. It got hit hard in the first quarter due to supply chain disruptions, and management expects these issues to extend through 2022. On the other hand, one of the reasons why first-quarter healthcare revenue growth was weak was COVID-19 delaying "site readiness and some equipment installations, mainly due to customers' labor and construction material shortages." Imaging rival Philips' management said a similar thing. However, it's possible that there was some catch-up in the second quarter as COVID restrictions eased globally. 

GE's management has already told investors that GE Renewable Energy's full-year results would be below its original outlook range as management deals with collapsing profit margins in the industry by being more disciplined on the pricing and conditions of orders. GE Aviation is a bit of a wild card. Commercial flight data suggests that global flights are now running at around 90% of 2019 levels; they started 2022 at 83% and were at 71% a year ago. That's good news for GE Aviation's high-margin aftermarket sales, but it's hard to know if ongoing supply chain issues from the first quarter will create margin headwinds or not. Finally, GE Power looks set for a decent quarter as management continues to engineer a margin recovery. 

What to expect from General Electric

Given ongoing headwinds, it wouldn't be a surprise to see GE lower expectations for earnings and FCF in 2022. But, on a more positive note, that negative opinion is probably baked into the market price right now. So, if management can maintain guidance on the back of improved revenue at GE Aviation and GE Healthcare, albeit with margin pressure in tow, the stock will likely react positively.