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 (October 31, 2019).
General Electric Co. reported a $9.5 billion third-quarter loss
weighed down by accounting charges, but the industrial conglomerate
showed signs of progress and again raised its cash-flow outlook for
Larry Culp, who took over as CEO about a year ago, has been
revamping GE with a focus on cutting its debt and generating cash
from its businesses of making jet engines and power turbines.
"I'm starting to see the improvements I wanted to see when we
started on this path a year ago," Mr. Culp said on a conference
call Wednesday. The first outsider to run GE, Mr. Culp has called
2019 a reset year for the Boston-based company.
GE's shares rose 11% to $10.11 on Wednesday. Investors and
analysts were relieved the company's core operations were
apparently stabilizing and there were no major surprises from a
review of a legacy insurance business.
The manufacturing giant has been through several difficult years
caused by problems in its power and financial-services units. It
switched leaders, gutted its dividend and sold off business units.
After tumbling in 2017 and 2018, GE's share price is little changed
from where it was trading when Mr. Culp took over.
GE reported adjusted cash flow from industrial operations of
$650 million for the third quarter and predicted it would generate
as much as $2 billion of cash on that basis for the full year. Cash
flow is essentially the money remaining after paying bills and
GE's struggles in recent years have made cash flow the most
important financial measure for investors. JPMorgan's Steve Tusa,
who has a negative opinion of GE shares, said this week that 2019
cash flow would likely be slightly positive. In July, GE raised its
outlook for 2019 cash flow to a range of negative $1 billion to
positive $1 billion.
In an interview, Mr. Culp said the cash flow was benefiting from
increased internal controls, more spending discipline and fewer
surprises arising in the operations. The company also benefited
from lower-than-expected restructuring costs, Mr. Culp said. "We
are getting the cost out with less investment," he said.
The full-year projection translates to fourth-quarter cash flow
of at least $1.6 billion. Mr. Culp has said he wants to move away
from GE's long-held pattern of having the strongest sales at the
end of the year and the end of quarters, but it will take years to
break the habit.
"Every day of the quarter and the year needs to matter as much
as the last day of the quarter and year," he said Wednesday.
In the third quarter, GE reported a net loss attributable to
common shareholders of $9.47 billion, compared with a loss of $22.8
billion a year earlier, when it booked a big charge on its power
business. Revenue was flat at $23.36 billion as gains in aviation
and health-care units were offset by declines in the power
GE booked an $8.7 billion charge to reflect the lowered value of
its investment in oil equipment and services firm Baker Hughes. GE
had previously warned investors about the charge as it sold down
its stake and gave up majority control of Baker Hughes. The company
also recorded a $1 billion charge on its legacy insurance business
and a $740 million write-down on the value of its hydropower
Excluding charges, GE said its adjusted earnings were 15 cents a
share, ahead of an analyst projection of 12 cents a share,
according to Refinitiv.
Mr. Culp said the company was raising its cash-flow goals
despite a drag from Boeing Co.'s grounding of its 737 Max airplane.
The jet is powered by engines made by GE in partnership with
France's Safran SA. GE reduced its production rate of its Leap
engines used in the plane.
GE still expects the 737 MAX's grounding to reduce cash flow by
$1.4 billion for the full year if the plane remains unable to fly.
Mr. Culp said GE was following Boeing's lead and is being
conservative in assuming the MAX won't fly again this year. Orders
for its Leap engine dropped 90% in the quarter.
The company said it completed a test on its long-term-care
insurance holdings in the third quarter to see whether it has
enough cash reserved for its expected future obligations. The $1
billion deficiency charge was largely the result of lower market
interest rates. Last year, the company had to commit $15 billion in
additional reserves for the policies after revamping its
assumptions for the portfolio. GE said those assumptions remain in
line with actual results.
Analysts at Evercore ISI said the insurance shortfall was on the
low end of expectations. "Following its mega charge in early 2018
and the resulting black cloud cast over the life-insurance
industry...we think this news should come as a relief," the
analysts said." GE said its claims are developing as expected,
while some other insurers have reported adverse development.
The power division, which had been GE's biggest in terms of
revenue, has been at the center of financial and operational woes.
The century-old business has suffered from deep losses amid a
global drop in demand for power-generating equipment. GE said
business remains in the middle of a multiyear turnaround as the
unit's revenue fell 14% from a year earlier to $3.93 billion, but
the division narrowed its losses to $144 million.
Profit and revenue rose in the GE's aviation and health-care
units. The aviation division, which makes jet engines, had $8.11
billion in third-quarter revenue and generated $1.72 billion in
profit. The health-care unit, which makes hospital equipment, had
$4.92 billion in revenue and a $974 million profit.
The company also highlighted its renewable-energy business,
which it now considers one of the four major divisions. The unit
sells wind turbines, hydropower equipment and includes GE's
electric-grid operation. Revenue rose 13% to $4.4 billion on a 30%
jump in new orders.
GE Capital, its financial-services operations, performed better
than expected in the quarter. GE plans to pare the division's $14
billion in debt, mostly using cash expected from selling its
biotechnology operations. GE still will contribute $4 billion in
cash to the division in 2019.
GE has been selling assets to pay down its debt, including the
biotechnology sale for more than $20 billion to Danaher Corp., Mr.
Culp's former company. Danaher said last week that it is making
progress on closing the deal, including a $750 million asset sale
that is contingent on the deal, but doesn't expect it to close
until the first quarter.
--Leslie Scism contributed to this article.
Write to Thomas Gryta at firstname.lastname@example.org
(END) Dow Jones Newswires
October 31, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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