GE Posts Loss on Restructuring Charges But Raises Cash-Flow Goals -- 2nd Update
October 30 2019 - 9:41AM
Dow Jones News
By Thomas Gryta
General Electric Co. reported a more than $9 billion
third-quarter loss, weighed down by accounting charges tied to the
industrial conglomerate's restructuring. But the company's core
operations generated cash in the quarter and GE raised its
cash-flow outlook for the year.
Larry Culp, who took over as CEO about a year ago, has been
revamping GE with a focus on the company's power division, 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. GE's battered shares rallied on the latest
results.
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.
GE's struggles in recent years -- including a gutting of its
dividend -- have made cash flow the most important financial
measure for investors. GE previously projected 2019 cash flow
ranging from negative $1 billion to positive $1 billion, an
estimate it increased in July.
In the third quarter, GE reported a net loss attributable to
common shareholders of $9.47 billion, compared with a year-ago loss
of $22.8 billion, 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
business.
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 in 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 business.
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.
Shares of GE rose 8% to $9.82 in premarket trading. After
tumbling in 2017 and 2018, the share price is still below where it
was when Mr. Culp took over a year ago. He has called 2019 a reset
year for the company and said it would take years to turn around
the operations.
Mr. Culp said Wednesday GE 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 had projected the grounding would cut cash
flow by $400 million for each of the third and fourth quarters if
the plane remains unable to fly.
The company said it completed a test on its long-term care
insurance holdings in the third quarter to see whether it had
enough cash reserved for its expected future obligations. Last
year, the company had to commit $15 billion in additional reserves
for the policies. This year, the company said the $1 billion
deficiency charge was largely the result of lower market interest
rates.
Analysts at Evercore ISI said the charge for the long-term care
insurance reserves 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." Importantly, GE said its claims are developing as
expected, while some other insurers have reported adverse
developments.
The power division, which had been GE's biggest in terms of
revenue, has been at the center of GE's 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 the
unit's quarterly revenue fell 14% from a year ago to $3.93 billion,
but the division narrowed its losses to $144 million.
Profits and revenue rose in 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 profits.
The health-care unit, which makes hospital equipment and had $4.92
billion in quarterly revenue, delivered a $974 million profit.
GE has been selling assets to pay down its debt, including
cutting a deal to sell its biotechnology business 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 thomas.gryta@wsj.com
(END) Dow Jones Newswires
October 30, 2019 09:26 ET (13:26 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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