GE GE Aerospace

By Thomas Gryta 

General Electric Co. swung to a first-quarter profit and reported stronger cash production than expected, but cautioned that the grounding of Boeing Co.'s 737 Max airliner could hurt the timing of its cash flows.

GE's Aviation business supplies jet engines for the Boeing plane, which has been grounded after two fatal crashes. Boeing has halted new MAX deliveries, which could slow the pace at which GE's factories can ship engines for the plane.

The Aviation unit's backlog of orders has been a bright spot for GE, which has struggled with slack demand in its other major division, which makes turbines for power plants. In the first quarter, sales and profits rose in Aviation while both fell at Power.

Overall, GE's core industrial businesses burned through $1.2 billion of cash in the first quarter; the company warned earlier this year that cash flow would drop as much as negative $2 billion in 2019.

On a conference call Tuesday, executives said they expect industrial cash flow to be negative in the second quarter. They estimated the Boeing Max problems could delay roughly EUR200 million in cash flow in the second quarter. The company maintained its forecasts for the full year.

It has called 2019 a "reset year" and said the first quarter would be the low point of the results. New CEO Larry Culp is restructuring the company, prioritizing the struggling Power division as well as reducing the conglomerate's massive debt load.

"One quarter is a data point, not a trend," Mr. Culp said on a conference call Tuesday. He noted that most of the company's restructuring efforts would fall into the second half of the year.

In the first quarter, GE reported a profit of $3.55 billion, compared with a year-ago loss of $1.18 billion. Revenue fell 2% to $27.29 billion, as a 22% decline in the Power division offset gains in Aviation and other units.

In the quarter, GE completed the sale of its century-old locomotive business, struck a more than $20 billion deal to sell its biotechnology business and paid $1.5 billion to settle a long-running Justice Department probe into a legacy subprime mortgage lending business.

Investors and analysts see cash production as a strong measure of a company's performance and value. For GE, which has all but eliminated its dividend, the goal is returning to sustainable cash flow. But like many things at GE in recent years, the company's complexity makes it difficult to assess performance around a single financial metric.

GE expects to report positive cash flow in 2020, but a slide for its conference call shows the Power division isn't expected to produce cash until 2021.

Analysts had varying expectations for the company's performance in the quarter. RBC Capital analyst Deane Dray estimated negative cash flow of $4 billion and Gordon Haskett analyst John Inch projected cash burn of $2.5 billion. JPMorgan analyst Stephen Tusa estimated a negative $3 billion.

Adjusted quarterly earnings per share were 14 cents, ahead of an analyst projection of 9 cents a share, according to Refinitiv, while revenue was slightly above the consensus view of $27.05 billion.

GE shares rose about 5% to $10.24 in early trading Tuesday. The stock has surged about 34% this year, but is down 30% in the last 12 months. Two years ago, GE shares traded at close to $30.

GE said its Power business eked out a small profit even as revenue fell 22% from a year ago to $5.66 billion. GE has been restructuring the unit, which has struggled with slack demand for power plant equipment and excess inventories. GE said orders fell 14% in the latest quarter but rose in the gas side of the business.

The division, which had been GE's biggest in terms of revenue, has been at the center of GE's financial and operational woes. The company recorded a $22 billion accounting charge last year mostly related to its acquisition of Alstom SA's power business in 2015.

The Aviation unit, which make jet engines used by Boeing and Airbus, reported $1.66 billion in quarterly profit as revenue rose 12% to nearly $8 billion, making it GE's biggest and most profitable unit. The business shipped more than 400 LEAP engines in the quarter, more than twice as many as in last year's quarter.

GE's CFM joint venture with Safran SA makes engines for the 737 MAX and Safran recently warned of cash flow delays related to the plane's troubles.

The Healthcare unit had a quarterly profit of $781 million on flat revenue of $4.68 billion. GE is selling off the fast-growing biotech side of the operations, using the proceeds to help pay down debt. That will leave behind a business focused on selling hospital equipment such as MRI machines.

GE Capital ended the first quarter with $122 billion of assets. GE has been shrinking the once massive lending operation, which still includes a large jet leasing business and legacy insurance business. The unit had a profit of $135 million from continuing operations in the quarter and GE has said it would have to pump $4 billion into the unit this year.

Write to Thomas Gryta at thomas.gryta@wsj.com

(END) Dow Jones Newswires

April 30, 2019 10:25 ET (14:25 GMT)

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