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General Electric (GE) sees lower-than-expected profits this year, calling 2019 a "reset." But GE expects the 2020s and 2021s to be "significantly better", which should lead to positive industrial cash flows next year. GE shares initially fell early Thursday, but opened up.
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On Thursday early, General Electric's forecast for 2019 would be 50-60 cents. The consensus of analysts on Wall Street had announced a GE profit of 201 cents for 2019, a turnover of 120.42 billion dollars. CEO Larry Culp expects first quarter EPS to be the worst quarter of 2019, "significantly down" from the first quarter of 2018.
The company expects adjusted free cash flow of $ 2 billion. This represents a decrease of $ 4.5 billion in 2018.
GE's fourth quarter report released on January 31 did not provide any indication in the short or long term. But CEO Culp has set the stage for the bleak forecast for 2019 at a JPMorgan conference on March 5, warning that cash flow from industrial activities would be negative.
However, GE announced Thursday that industrial free cash flow would be positive in 2020 and more improved in 2021. It predicts organic EPS growth from a "significantly better" perspective between 2020 and 2021.
"We have work to do in 2019, but we expect a significant improvement in performance for 2020 and 2021," Culp said in a statement.
"We expect 2019 to be a pivotal year," Culp added, echoing what his predecessor, John Flannery, said last year.
GE Power: "Serious recovery mode"
Culp said the top priority was to put GE Power on debt reduction. General Electric has linked its cash outlook to the electricity market crisis.
"Power is in a serious recovery mode," said Culp. But "it's not going to be fast, far from it."
General Electric said GE Power's revenues would decrease in 2019 as cash consumption increases this year. Cash flow will be better but "still negative" in 2020.
But GEP has better visibility on the energy sector, with positive cash flow for the main unit in 2021, Culp predicted.
For the other core businesses that a "simple and more focused GE" will continue to do, Culp has described aviation and health care as solid businesses, with solid cash returns.
GE Stock Action Choppy
GE's stock rose 2.3% close to the open, after losing up to 4.5% of its stock market action prior to the sale. The shares were volatile, dipping after the cash flow warning but retrieving the 50-day deadline on March 7 after GE attempted to dispel concerns about its insurance business.
They traded below the 200-day mark in the last two years.
The Industrial Select SPDR fund (XLI) and the Vanguard Industrial ETF (VIS) made slight progress.
General Electric: turnaround in progress
CEO Culp has made debt reduction a top priority.
He recently sold a biopharmacy unit to Danaher (DHR) for about $ 20 billion, adding to several other asset sales. Culp was previously CEO of Danaher.
Culp has also made the determination of power and financial units its priorities, but the challenges are immense.
GE and Siemens (SEIGY) saw sales of gas and steam turbines crumble in the electricity market that they dominate, as demand evolves towards renewable energies.
And shareholder lawsuits and regulatory investigations continue to pursue legacy financial activities of GE.
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