GE Expects Rebound After Tough ‘Reset’ Year in 2019; Shares Climb

March 14, 2019 Updated: March 15, 2019

General Electric Co promised on March 14 that its earnings would improve in 2020 and beyond after a difficult, “reset” year in 2019, sending shares higher in midday trading.

Chief Executive Officer Larry Culp said GE will invest $2.5 billion in a restructuring that will yield returns after 2019.

“This is what constitutes a reset,” Culp said on a conference call, using a word many analysts said they wanted to hear.

The U.S. conglomerate said 2019 adjusted profit would fall below analyst estimates of 70 cents a share, and it could lose as much as $2 billion in cash from its industrial businesses, putting a number on a warning it issued last week.

GE shares surged nearly 3 percent to $10.30 in midday trading, after dropping as much as 4 percent in premarket activity shortly after the forecast was released. GE bonds rose slightly.

The company did not warn about a potential hit to its jet engine division from the recent global grounding of Boeing Co 737 MAX aircraft, following the crash of an Ethiopian Airlines flight on March 10 that cost 157 lives.

GE and partner Safran SA of France make the engine that powers all of Boeing’s 737 MAX planes.

Culp reiterated his priorities of trimming debt and improving the performance of GE’s industrial businesses, especially the ailing power-plant division.

GE expects free cash flow at power to remain negative in 2020 before turning positive in 2021. Investors are looking closely at GE’s cash and earnings after the company lost nearly $23 billion last year.

Adjusted free cash flow for all industrial business should be between break-even and negative $2 billion, before turning positive in 2020, Culp said.

That outlook is “arguably better than expected,” said Deane Dray, an analyst at RBC Capital Markets.

But GE left an unusual amount of wiggle room by including an unspecified amount of “contingency” money to cover hard-to-predict costs, such as when it will conclude big asset sales and how its power unit will perform.

JPMorgan analyst Stephen Tusa voiced concern that the gap between GE’s cash flow and earnings forecasts was the widest he has seen, which likely will mean analysts’ profit estimates are too high.

GE predicted 2019 profits of 50 cents to 60 cents a share.

 

By Alwyn Scott & Sanjana Shivdas

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