GE slips as aviation woes show plenty remains on Culp’s to-do list
(Bloomberg) – General Electric Co. shareholders get a reality check of the company’s first quarter results, a mixed performance that underscored the work ahead for CEO Larry Culp and his drive for a turnaround.
Sales fell 12% to $ 17.1 billion, driven by the struggling jet engine, GE said on Tuesday. This drags the $ 17.6 billion expected by Wall Street. Orders fell in aviation and two other manufacturing units, and GE’s stable financial forecast created a “negative contrast” with conglomerates which improved their outlook, said John Inch, analyst at Gordon Haskett.
The report left investors with little to be excited about in the immediate future as Culp continued his efforts to restore some of the company’s lost glory. GE, which surprised Wall Street with a cash rebound in H2 2020 and strong prospects for further earnings this year, is now banking on Covid-19 vaccinations to boost air travel and revive demand for its jet engines and its associated services. – while continuing to fix his other professions.
Air travel is picking up in the United States and activity in China is above 2019 levels, “but you have other parts of the world that are clearly going to be more difficult,” Culp said in an interview. “What is happening in India is nothing less than a humanitarian crisis and we are seeing it. This is our second largest footprint for GE, so unfortunately we have very good visibility into it all.
Shares fell less than 1% to $ 13.45 by 3:43 p.m. in New York City after falling 4.9% for the largest intraday decline in six weeks. The slide extended a retreat that began in March after GE agreed to sell its lessor of planes to AerCap Holdings NV. Before that, GE had mobilized strongly this year.
In the first quarter, GE’s jet engine unit sales fell 28%, while orders fell almost as much. The Boston-based company said it expects annual aviation revenue to be up or flat, due to a recovery in the second half of the year.
Revenue and orders also fell in the electrical equipment division and the healthcare unit, which manufactures medical scanners. Only the renewable energy activity recorded gains in these categories.
GE’s “mixed results” provided “limited signs of a shift everywhere,” Steve Tusa, analyst at JPMorgan Chase & Co., said in a report.
Adjusted earnings climbed a dime to three cents per share, beating the 1.4 cent average of analyst estimates compiled by Bloomberg. GE’s industrial divisions burned $ 845 million in the first quarter. Analysts polled by Bloomberg were forecasting a cash usage of $ 663.9 million.
Cash generation is generally low in the first quarter for GE. Culp said GE was close to breaking even on a cash flow basis during the period, ruling out an $ 800 million headwind resulting from the elimination of most of its factoring. , a practice in which the company sells receivables to a partner to raise short-term liquidity.
“We’re encouraged by what we saw in the first quarter,” he said. “We would present it as a solid start to the year.”
GE included the factoring success in its first quarter results, but plans to adjust the effects starting in the second quarter, Culp said. So while another hit of $ 4 billion is likely in the second quarter of eliminating factoring, it will be left out of its cash figures.
“We will strive over the course of the year to explain it in a way that represents our underlying operational reality,” Culp said.
Results capped a busy quarter in which GE announced the $ 30 billion airline lease with AerCap. With the deal, expected to close early next year, GE is unloading the last major vestige of its ailing financial services arm GE Capital.
The results of what remains of GE Capital will be reported in the company’s industrial balance sheet. GE has announced plans to use the proceeds of the deal to pay off an additional $ 30 billion in debt, bringing its total reduction in borrowing since 2018 to $ 70 billion.
Last year Culp cut jobs and raised money after the pandemic crushed global air travel and threatened his repair work at GE. The company’s large jet engine division continues to weigh on results as customers Boeing Co. and Airbus SE face weak demand for new aircraft.
GE’s engine maintenance business also suffered, with US flight departures in mid-April down 30% from pre-pandemic levels. The company tracks departures as a measure of demand for lucrative spare parts and services.
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