When General Electric Co's investors gather on Thursday, the focus will be on the company's loss-making renewable energy business as well as persistent supply-chain challenges at its aerospace unit.
A $100 billion reduction in debt since 2018, coupled with a successful spin-off of its healthcare business and strong demand at its aerospace business, have shored up Wall Street's confidence in the Boston-based industrial conglomerate, driving up its shares up by nearly 80% since end-September.
But renewable energy remains a problem.
The unit, part of the company's portfolio of energy businesses called GE Vernova, has failed to turn a profit in the past eight quarters due to a combination of weak demand, higher raw materials and labor costs and supply-chain pressures. It reported a loss of $2.2 billion last year.
Analysts have raised questions about whether GE may be forced to alter a plan to spin off GE Vernova into a separate company next year, including a possible delay or changing which assets are included.
GE Chief Executive Larry Culp has acknowledged the renewables business requires "wiring and plumbing" before the spin-off.
"I want to kind of understand is there any chance at all that Vernova will not include GE wind," William Blair analyst Nicholas Heymann said.
GE is prioritizing the turnaround of its onshore wind business and has reduced the unit's global headcount by about 20% in a restructuring and resizing that is expected to produce savings this year.
Nonetheless, although tax credits for wind projects offered under the U.S. Inflation Reduction Act (IRA) have boosted demand in North America, the company doesn't expect a meaningful improvement in the onshore business in the first half of 2023.
GE also faces challenges in offshore wind since it was barred from making and selling its Haliade-X wind turbines in the U.S. after a jury found they infringed a patent owned by rival Siemens Gamesa Renewable Energy.
Bernstein analyst Brendan Luecke expects GE's renewables business to post another loss this year.
But overall, GE is expected to reiterate its 2023 adjusted earnings outlook of $1.60 to $2.00 per share on Thursday.
The aerospace business, which supplies engines to Airbus and Boeing, is grappling with shortages of labor, parts and raw materials.
The unit, GE's cash cow, had unfilled customer orders worth $135 billion at the end of 2022, up 8% from the prior year.
GE has deployed hundreds of employees to its aerospace suppliers' sites to ease the bottlenecks but there has been no material improvement in the situation.
"GE has made great progress, but risks remain," JPMorgan analysts said in a note.
(Reuters - Reporting by Rajesh Kumar Singh; Editing by Ben Klayman, Kirsten Donovan)
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