GE GE Aerospace

By Thomas Gryta 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 5, 2020).

General Electric Co. said the coronavirus epidemic would reduce the company's first-quarter free cash flow by $300 million to $500 million, but backed its full-year target for the closely watched metric.

The company still expects to generate positive cash flow between $2 billion and $4 billion for the full year from its industrial operations. Cash flow is essentially the money left after a business pays its bills and makes investments.

"We have conviction in the broad outline for 2020," Chief Executive Larry Culp said. The company's outlook regarding the virus, which has disrupted global travel and production in China, is based on the facts known today. "What we don't know outweighs what we do know at this time, " Mr. Culp told investors Wednesday. The impact isn't included in the 2020 estimates beyond the first quarter.

"We aren't going to try to look into the crystal ball that none of us have," he said in an interview.

GE still targets 2020 adjusted earnings of 50 cents to 60 cents a share and continues to expect the roughly $21 billion sale of its biopharma business to Danaher Corp. to close by month's end. Analysts expect 2020 adjusted earnings of 59 cents a share, according to FactSet.

The company also named former Defense Secretary Ash Carter to its board, subject to approval at its May shareholder meeting.

GE's outlook assumes Boeing Co.'s grounded 737 MAX resumes flying midyear. A GE joint venture with Safran SA of France makes the engines used on the jet, and GE has cautioned the production halt could pressure its cash flow. Recently, Boeing promised to pay its engine suppliers for all deliveries by the end of 2021.

David Joyce, the head of GE's aviation business, said the recent agreement with Boeing to cover payments for engines used on the 737-MAX and set the pace of production for 2020 has left more capacity than needed. He said the division put a hiring freeze in place, is cutting costs and will use some of the capacity to "improve our fulfillment in places where our supply chain is constrained."

The division is experiencing some virus-related air-traffic slowdowns in the Asia-Pacific region. Air traffic on planes with the division's engines is down 60% in China since late January, GE said.

Mr. Culp said the Boeing engine agreement isn't directly offsetting cash lost from virus-related pressure, but does provide some certainty for the division. GE reported a $1.4 billion cash-flow reduction in 2019 from engines delivered to Boeing that weren't paid-in-full because final delivery of planes ceased. He said GE wasn't going to disclose the details of the deal.

The Power division, which has suffered in recent years because of poor deals and misjudging changes in demand for natural-gas-fueled power generation, expects margins to expand over the next two years and positive cash flow for 2021.

Mr. Culp, who has been chief executive for almost 18 months, said GE burned through about $1.7 billion in cash in recent years related to spending decisions and outstanding liabilities from the 2015 acquisition of Alstom SA's power business. The remaining costs will burn $300 million to $400 million a year, but will be gone by 2022, he said.

Costs from GE's large corporate operation will drop by $700 million in the next two years, Mr. Culp said. Last year, the company transferred 8,500 people from the corporate group to the individual businesses, which will make their own decisions about cutting or retaining those costs.

Regarding the coronavirus, GE said all but two facilities in China are restarted but it noted reduced operating capacity. The company has about 18,000 workers in China, which brings in about 9% of annual revenue for its industrial divisions. GE is experiencing some disruption within China, along with logistical issues that make it harder to move products.

Mr. Culp said GE's global workers are the primary focus: The company has reinforced hygiene practices and limited travel to certain areas. The health-care division is also a concern, because some workers are on the front lines of the epidemic delivering equipment and supplies, along with servicing machines such as CT scanners in the area.

The virus is affecting Mr. Culp's own behavior, he said. His team has been implementing a no-handshake policy. "There have been a few forearm and elbow bumps here and there in recent days," he said. "We are trying to do the best we can without overreacting."

Write to Thomas Gryta at thomas.gryta@wsj.com

(END) Dow Jones Newswires

March 05, 2020 02:47 ET (07:47 GMT)

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