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GE Surges as New CEO Gains Handle on Cash Burn Amid Turnaround


Apr 30, 2019, by Richard Clough
(Bloomberg)

General Electric Co. jumped after revealing that it burned less cash to start to the year, boosting Chief Executive Officer Larry Culp’s effort to rejuvenate the ailing manufacturer amid a global slowdown in the power-equipment market.

Free cash outflow in GE’s industrial businesses was $1.22 billion in the first quarter, the company said in a statement Tuesday as it reported earnings. That was better than Wall Street’s expectations for negative $2.9 billion in free cash flow, and an improvement over last year’s burn of $1.76 billion.

“Our quarterly results were better than our expectations,” Culp said in the statement, in which GE reaffirmed its 2019 financial forecasts. “This is one quarter in what will be a multiyear transformation, and 2019 remains a reset year for us.”

The results provide the first glimpse of what is expected to be a rough year for cash generation after Culp warned last month that GE would burn as much as $2 billion this year. The company anticipates a rebound next year for industrial cash flow, a closely watched metric that is considered a gauge of earnings potential, as Culp seeks to repair the balance sheet and regain investor confidence amid one of the worst slumps in the company’s 127-year history.

GE surged 10 percent to $10.71 before regular trading Tuesday in New York. The shares climbed 34 percent this year through Monday, topping the 21 percent increase in a Standard & Poor’s index of industrial stocks.

Along with cash performance, GE also topped expectations for profit and sales in the quarter. Adjusted earnings of 14 cents a share compared with the 9-cent average of analyst estimates. Sales fell 1.8 percent to $27.3 billion, ahead of expectations of $27.1 billion.

The aviation unit, one of the bright spots for GE during a dismal past two years, again provided a boost, with a 12 percent sales gain. But the division has its challenges. GE, which makes engines through a joint venture with Safran SA, called the uncertainty around the grounded Boeing Co. 737 Max a “new risk.”

Power Lag

Sales in the power-equipment unit continued to lag, falling 22 percent as Boston-based GE navigates a multiyear decline in the market. The business, which makes and services gas turbines and other machinery, has been a significant drag on GE’s cash and earnings.

Culp, who assumed the top post in October, recently took one of his boldest steps yet to reshape the portfolio when he agreed in February to sell the biopharmaceutical division for $21.4 billion and shelve plans for a spinoff of GE’s broader health-care unit. The move was part of a broader effort to narrow GE’s focus, strengthen its operations and improve the balance sheet.

Culp is trying to reduce risk inside the company, highlighted by an agreement GE revealed during the quarter to pay $1.5 billion to settle a Justice Department investigation of a defunct subprime-mortgage business in GE Capital.

The once-vast finance arm reduced assets by $1.1 billion during the quarter and paid down $2 billion of external debt, GE said.



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