GE is expecting a rebound after a difficult year of "reset" in 2019; share climbs by Reuters

By Alwyn Scott and Sanjana Shivdas

(Reuters) – General Electric (NYSE: Co) promised Thursday that its profits would improve in 2020 and beyond, after a difficult year of "reset" in 2019, which would send stocks up at noon.

Chief Executive Larry Culp said GE would invest $ 2.5 billion in a restructuring that will deliver results after 2019.

"That's what constitutes a reset," Culp said during a conference call, using a word that many badysts said they want to hear.

The US conglomerate said adjusted earnings for 2019 would be lower than badysts' estimates of 70 cents a share, and could lose up to $ 2 billion in cash from its industrial operations, adding a figure to the warning posted last week.

GE shares jumped nearly 3% to $ 10.30 in noon trading, after a nearly 4% drop in pre-market activity shortly after the release of the forecast. GE bonds increased slightly.

The company has not warned of a potential risk to its jet engine division from the recent global grounding of the Boeing (NYSE 🙂 Co 737 MAX aircraft, following the crash of an Ethiopian Airlines flight which killed 157 people.

GE and partner Saffron (PA 🙂 SA de France manufactures the engine that powers all Boeing 737 MAX aircraft.

Culp reiterated its priorities for reducing debt and improving the performance of GE's industrial operations, particularly the troubled power plant division.

GE expects that free cash flow from electricity will remain negative in 2020 before becoming positive by 2021. Investors are keenly interested in GE's cash flow and results after the loss of nearly 23 billion dollars last year.

Adjusted free cash flow from all industrial activities is expected to be between breakeven and $ 2 billion, before becoming positive in 2020, Culp said.

This prospect is "probably better than expected," said Deane Dray, an badyst at RBC Capital Markets.

But GE has left some unusual leeway by including an unspecified amount of money "urgently" to cover the hard-to-predict costs, such as when it will close large sales of badets and the performance of its power unit.

Stephen Tusa, an badyst at JPMorgan (NYSE :), said he was concerned that the gap between GE's cash flow and earnings guidance was the widest ever observed, which likely means badysts' earnings estimates are too high.

GE has forecast for 2019 earnings between 50 and 60 cents per share.