“Simply put, we have too much debt.”
And with that comment, GE CEO Larry Culp kicked off his assessment of GE’s long-term future to investors during a conference call on Thursday, March 14. The call seemed to have an immediate impact on GE stock. It rose 3% for the day.
Earlier this month, Culp first announced that 2019 would be difficult financially, but nearly as bad as 2017, when GE Power had a negative cash flow of $4.5 billion.
Culp described 2019 as a “reset year” for the GE Power business. In 2018, GE reported a negative cash flow of $2.7 billion. In 2019, Culp told investors it will be worse. But after that, it’s “game on”, and Culp expects a turnaround. “We expect industrial free cash flow to return to positive free cash flow in 2020, and positive cash flow in 2021,” Culp told investors. “Power is in a serious turnaround mode, and this is not going to be quick.”
It’s been a difficult downturn for GE over the past few years, which includes a rotation of CEO’s before Culp was named to the position on October 1 of last year. Before he took over, GE is blaming some of its difficulties on an inability to prepare for a slowdown in turbine demand. GE told investors it is expecting that slowdown to remain through next year.
“Power is in a serious turnaround mode. This is not going to be quick, by any stretch,” Culp said.
GE says it will reduce costs in the power division by 20 percent over the next two years, which will help with margins. “We are expecting organic revenues and margins to be down in 2019, and up in 2020,” Culp said. “Again, 2019 will be a year of real change for power, and this is multi-year journey to positive free cash flow in 2021. But I am encouraged by the progress the teams are making and the dedication to the vision that we have for transforming this business for the future.”
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