General Electric reported a $1.2 billion loss in the first quarter on Friday following a large legal charge, but shares surged after operating profits topped analyst expectations.
GE, which has been hit by weakness in its power and oil and gas businesses, set aside $1.5 billion in legal reserves connected to lawsuits from its discontinued US mortgage business, WMC.
Revenues rose 6.7 percent to $28.7 billion.
GE reported profits in every division except oil and gas. The company also reaffirmed its 2018 forecast.
“The first quarter is a step forward in executing on our 2018 plan and we are seeing signs of progress,” said chief executive John Flannery.
GE’s slumping power division “is making progress on cost actions and operational and services execution, but the industry continues to be challenging and is trending softer than our forecast,” Flannery added.
Since Flannery became CEO last summer, GE has trimmed costs, streamlined its board, cut its dividend and revamped employee compensation. The company also has announced plans to sell $20 billion in industrial assets.
The power business has been beset by slowing demand for gas turbines due in part to rising demand for renewable energy.
Poised for turnaround
GE’s other problem division of late, oil and gas, could be poised for a turnaround in the foreseeable future due to strengthening oil prices. Major producers including Saudi Arabia and Russia signaled Friday they plan to extend a production accord to defend higher oil prices.
“If it turns around for oil and gas, that could be significant,” analyst Brian Langenberg said Friday on CNBC.
GE scored higher profits compared with the year-ago period in four divisions, including healthcare and aviation, which have been the strongest businesses.
GE was expected to face questions from analysts over the possible impact of an incident on a Southwest Airlines jet in which an engine made by GE and France’s Safran exploded in flight, leading to a fatality.
GE highlighted continued strength in aviation as a positive in its 2018 outlook.
GE has previously signaled that it expected additional legal costs connected to WMC. In a February US securities filing, the company said it believed the US Department of Justice would assert the company violated US law “in connection with WMC’s origination and sale of subprime mortgage loans in 2006 and 2007.”
GE’s earnings translated into 16 cents per share, four cents above analyst expectations.
Shares jumped 5.0 percent in pre-market trading to $14.69.
Langenberg predicted GE shares would face headwinds until it shows significant improvement in power.
“Until you get power fixed -- and they’re not close to getting that fixed -- the stocks only going to up so much,” he told CNBC.