GE Finds Its Footing and Posts Strong 4Q Cash Flow -- Update
January 29 2020 - 8:26AM
Dow Jones News
By Thomas Gryta
General Electric Co. reported strong cash flow from its
industrial operations in the fourth quarter and gave an upbeat
outlook for 2020, as the conglomerate reverses losses in its power
business and its aviation division continues to support the rest of
the company.
GE said it generated $3.9 billion in industrial free cash flow
in the December ended quarter, helping the company exceed its
targets for the full year. Cash flow is essentially the money
remaining after paying bills and making investments.
On Wednesday, executives projected cash flow and profits would
rise in 2020, as restructuring efforts and improved business
conditions offset challenges from the grounding of Boeing Co.'s 737
MAX jet. GE is part of a joint venture that makes the engines for
the airplane; its financial projections assume the plane returns to
service in mid-2020.
GE shares rose 3.5% to $12.14 in premarket trading. After
tumbling below $8 last summer, the shares have rallied as Chief
Executive Larry Culp makes progress on his plans to pay down the
company's debt load and streamline its operations. Strapped for
cash, GE slashed its dividend and has been selling off business
units.
The company said it would provide a detailed 2020 financial
outlook in early March.
For the full year, GE said it generated $2.3 billion in cash
flow from industrial operations, topping its goal of between
break-even and $2 billion. Early last year, Mr. Culp was projecting
the company might burn through as much as $2 billion in cash from
the core operations in 2019, but he revised the forecasts several
times as the company made progress.
As before Mr. Culp's arrival, GE continues to rely on big fourth
quarter results to meet its annual targets. In the first nine
months of 2019, GE produced negative cash flow of $1.6 billion.
GE has set a higher bar to clear for 2020, projecting cash flow
of $2 billion to $4 billion, despite the grounding of the MAX jet
and loss of cash generated by its biotechnology business and its
former oil and gas business. GE has struck a deal to sell its
biotech business and is winding down its stake Baker Hughes.
The grounding of the 737 MAX jets cut cash flow by $1.4 billion
in 2019, as expected. On Wednesday, GE said the MAX "remains a
watch item" and it is in close contact with Boeing.
After years of dizzying accounting and unexpected struggles --
including two dividend cuts largely stemming from deep problems in
its power business and financial services division -- investors and
GE management are focused on cash flow as the most important
financial measure.
In the fourth quarter, net income fell 6% to $538 million as the
company continues to restructure its operations. Revenue dropped 1%
to $26.24 billion, exceeding analyst expectations of $25.69
billion, according to FactSet. Excluding various items, GE said it
earned 21 cents a share, above the consensus view of 18 cents.
Orders for new equipment and services fell 3% in the quarter,
excluding acquisitions and currency swings. The decline was driven
by a 30% drop in the power division, which makes turbines for power
plants.
The division, which had been GE's biggest in terms of revenue,
has been at the center of GE's financial and operational woes. Mr.
Culp has said dramatic changes were needed in the business, which
GE has since separated into two units.
The century-old business has suffered from deep losses amid a
global drop in demand for power-generating equipment. The unit has
cut thousands of jobs to adjust to the market, but GE has said it
will take years to get the division back on track.
The aviation division, which reported that orders rose 22% in
the quarter, is GE's largest business by revenue and its health is
vital to the conglomerate's overall turnaround.
GE is awaiting its $21 billion sale of its biopharma business to
Mr. Culp's former company Danaher Corp. The deal received
conditional clearance in Europe last month. GE plans to use the
proceeds to pay down debt. GE's 2020 projection includes the
expected close of the BioPharma sale by the end of March.
Write to Thomas Gryta at thomas.gryta@wsj.com
(END) Dow Jones Newswires
January 29, 2020 08:11 ET (13:11 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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