GE GE Aerospace

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)

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