GE Boss Warns of Quarterly Cash Drain From Boeing MAX -- Update
February 19 2020 - 12:06PM
Dow Jones News
By Thomas Gryta
Larry Culp, chief executive of General Electric Co., cautioned
investors that the manufacturing giant would burn about $2 billion
in cash flow in the first quarter.
Mr. Culp cited pressure from the extended grounding and
production halt of Boeing Co.'s 737 MAX aircraft. A GE joint
venture with France's Safran SA makes the engines used on the
jet.
Mr. Culp, speaking at a Barclays PLC investor conference
Wednesday, said there will be pressure on GE's ability to generate
cash in the first half of the year but he expects GE to generate
cash from operations later this year.
He hadn't previously provided a first-quarter target, though he
has forecast $2 billion to $4 billion in positive cash flow for the
full year. A year ago, GE burned through $1.2 billion in cash
during the first quarter of 2019 before ending the year with $2.3
billion of total cash flow from its industrial operations.
The cash flow pressure will likely result in first-quarter
earnings lower than last year, Mr. Culp said.
"We are a back-half cash business," Mr. Culp said Wednesday,
noting it will take time to change that pattern. "It's going to be,
I think, difficult, particularly in light of the 737 MAX dynamics
with Boeing, to do that."
GE shares rose 17 cents, or 1.3%, to $12.92, just below a
52-week high hit last week. Mr. Culp also was set to speak later
today at a Citigroup Inc. conference.
The grounding of 737 MAX jets after two fatal crashes cut GE's
2019 cash flow by $1.4 billion in 2019, but the aviation business
-- the conglomerate's largest business by revenue -- still produced
$4.4 billion in cash flow for the year.
Mr. Culp also said a long-awaited review of its legacy insurance
holdings came in better than expected in the first quarter, with an
expected $100 million increase to its contributions for the
policies.
The company recorded a $1 billion charge related to the
insurance business in last year's third quarter after testing
whether it had enough cash reserved for its expected future
obligations. In 2018, GE shocked investors when it committed $15
billion in additional reserves for the policies.
The coronavirus outbreak in China is "certainly a bit of a wild
card for us, like everybody," Mr. Culp said. GE has been
prioritizing delivery of health-care equipment to hardest hit areas
and has donated patient monitors and other equipment.
Mr. Culp said the completion of GE's $21 billion sale of its
biopharma business to Danaher Corp., his former company, was "in
sight." GE plans to use the cash to pay down debt and is awaiting
regulatory approval. It most recently said the sale would close by
the end of March.
At the Barclays conference, he spoke of efforts to improve both
operations and the company culture.
GE's power division has been a drag for years and the company
projected last month that 2020 cash flow from the division would be
negative. On Wednesday, Mr. Culp said cash flow from that business
would be better than the negative $1.5 billion in 2020 but would
still be negative.
He applauded the improvements in the division but said any time
a business division reports negative free cash flow "there's a
limit to how much we're going to celebrate that."
Mr. Culp is trying to shift the culture inside GE to make sure
bad news travels faster than in the past. "What we're really trying
to encourage folks to do is make sure that they're telling me, or
they're telling their boss, what they think, as opposed to what
they think their boss might want to hear," Mr. Culp said.
Write to Thomas Gryta at thomas.gryta@wsj.com
(END) Dow Jones Newswires
February 19, 2020 11:51 ET (16:51 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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