GE Power Unit Faces Three-Year Turnaround Despite Orders Report

May 16, 2019 Updated: May 16, 2019

NEW YORK—General Electric Co. expects its core power-plant business to lose significant cash this year and does not expect large improvement in that unit’s cash flow margins for at least three years, the company’s chief financial officer said on May 15.

“Power was a very significant negative cash flow generator last year. We expect it to be also significantly negative this year,” CFO Jamie Miller said at an investor conference hosted by Goldman Sachs.

Miller said GE had expected some power-plant orders that it booked in the first quarter to be spread more throughout the year, suggesting the relatively strong quarter did not signal a turnaround in the ailing unit.

GE stock rallied on May 14 after Reuters reported that the company booked six orders for large “advanced class” turbines in the quarter, putting it ahead of rivals Mitsubishi Hitachi Power Systems and Siemens AG , according to sources familiar with a closely watched total by McCoy Power Report.

Some investors see signs that GE’s ailing power business is improving. Others see caveats: A McCoy tally of orders by gigawatts showed erosion in GE’s market share, JPMorgan analyst Steve Tusa said in a note on May 15.

“GE’s 4.5 gigawatt order number has generated a buzz across a Street consensus hungry for positive data points,” Tusa wrote, noting GE has historically commanded 50% market share.

“A closer look shows externally sold utility-grade heavy duty gas turbine orders of about 1 gigawatt, well below both Siemens and Mitsubishi (about 2.5+ gigawatts each) and far from a signal of a change in trend or upside.”

Miller also tempered expectations. GE’s power business will take two to three years to “work through” lingering pension costs, unprofitable contracts, and liabilities from its 2015 acquisition of Alstom, she said. GE’s forecasts do not include an economic downturn, in part because of long purchase cycles and large order backlogs on GE products, she added.

GE is trying to shift the power business from “being really managed on a quarterly basis down into this monthly, weekly, daily management,” she added.


By Alwyn Scott