Manufacturers

GE Cash Flow and Outlook Improving in Q3 2019

GE Cash Flow and Outlook Improving in Q3 2019

GE raised its projections for industrial free cash flow Wednesday despite a damaging trade fight and ongoing problems with Boeing’s 737 Max (detailed earnings results below.)

That industrial business is at the core of what GE wants to become and it’s been shedding billions of its assets in other divisions to get there.

The Boston company reported a loss of $9.42 billion, or $1.08 per share, for the period ended Sept. 30. But there were significant charges during the quarter related to a massive restructuring effort at GE.

Removing one-time costs, per-share earnings were 15 cents, 3 cents better than Wall Street had expected, according to a survey by Zacks Investment Research.

The losses this third quarter were less than half of last year’s $22.8 billion.

GE took a $8.7 billion charge related to its diminishing involvement with the oilfield services company Baker Hughes, and almost $2 billion in charges related to financial and power businesses.

“We have more work to do, and we will continue to take actions to improve our financial position and strengthen our businesses as we prepare for 2020 and beyond,” Culp said in a prepared statement. “I remain confident that we will unlock value for GE’s stakeholders as our transformation accelerates.”

Culp became CEO last October after John Flannery was forced out.

Since then, shares of General Electric Co. are up 27%. Shares jumped 7% before the opening bell Wednesday.

GE said it is making progress in cleaning up its troubled power division and its focus on its industrial core is bearing fruit.

While overall revenue was flat at $23.36 billion, industrial segment organic revenues rose 7%.

In July the company anticipated its full-year industrial free cash flow would be negative $1 billion to positive $1 billion. On Wednesday it painted a rosier picture, saying it now expects industrial free cash flow would be flat to $2 billion.

The company expects that cash flow to remain in positive territory next year, and that it will accelerate in 2021.

Revenue for the aviation segment rose 8%, with GE saying it continues to work closely with Boeing to ensure the timely and safe return to service of the 737 Max.

GE helps make engines for Boeing’s 737 Max planes and took a hit after the plane was grounded following two deadly crashes.

Total orders increased 5%, while backlog grew 14%.

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Portions of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on GE at https://www.zacks.com/ap/GE

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BOSTON — October 30, 2019 — GE announced results today for the third quarter ending September 30, 2019.

GE Chairman and CEO H. Lawrence Culp, Jr. said, “Our results reflect another quarter of progress in the transformation of GE. We are encouraged by our strong backlog, organic growth, margin expansion, and positive cash trajectory amidst global macro uncertainty. We are raising our Industrial free cash flow outlook again even with external headwinds from the 737 MAX and tariffs, and we are holding our adjusted EPS outlook despite reduced income from moving Baker Hughes to discontinued operations.”

Culp continued, “This quarter, during strategy reviews with each of our businesses, we identified and prioritized operating improvements and growth investments that will drive sustainable results. We have more work to do, and we will continue to take actions to improve our financial position and strengthen our businesses as we prepare for 2020 and beyond. I remain confident that we will unlock value for GE’s stakeholders as our transformation accelerates.”

GE continued to take action to improve its financial position and strengthen its businesses:

  • Sold down remainder of its common shares in Wabtec, which resulted in $1.6 billion of net cash proceeds (~$6 billion in total), and part of its stake in Baker Hughes, which resulted in $3 billion of net cash proceeds (~$6.7 billion to date).
  • Announced or completed more than $9 billion of total Industrial deleveraging actions, including completing a ~$5 billion debt tender, repaying a portion of the intercompany loans from GE Capital, and announcing multiple changes related to U.S. pension benefits that GE expects will reduce its Industrial net debt* by $4-6 billion through 2020.
  • Reduced external debt at GE Capital by $1 billion in the quarter ($5 billion year to date) and assets by ~$2 billion in the quarter ($3.6 billion year to date) and announced the sale of PK AirFinance.
  • Continued to stabilize Power, manage production ramp in Renewable Energy with minimal disruptions, and commercialize new products across GE’s businesses.

Significant Developments

During the third quarter, GE also recognized non-cash charges that affected earnings:

  • As previously disclosed since 2018, upon ceding majority ownership of Baker Hughes, GE expected to record a significant loss upon deconsolidating the segment, and segment results were reclassified to discontinued operations. This amounted to $8.7 billion pre-tax, which was recorded in discontinued operations.
  • GE completed its annual Insurance U.S. GAAP premium deficiency test, which identified a premium deficiency charge of approximately $1.0 billion pre-tax ($0.8 billion after-tax). This was largely driven by a significant decline in market interest rates that resulted in a lower discount rate, partially offset by premium rate increases. This was a $(0.09) impact to continuing EPS (GAAP).
  • As part of its annual goodwill impairment testing process, GE recorded a goodwill impairment charge of $740 million related to its Hydro business in Renewable Energy, which was a $(0.08) impact to continuing EPS (GAAP).
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