It’s only one quarter into 2019, but GE already looks poised to wrestle with steadying its cash position as it did for most of last year.
GE said Tuesday that its industrial free cash flow —a number closely watched by Wall Street to assess the health of the industrial giant — was an outflow of $1.79 billion in the first quarter. A year ago, GE’s industrial free cash flow was an outflow of $1.77 billion.
On an adjusted basis, GE said its industrial free cash flow was an outflow of $1.2 billion.
Many on Wall Street were looking for a free cash flow outflow of about $2 billion in the quarter.
At a March meeting with investors, GE CEO Larry Culp promised that industrial free cash flow would be down $2 billion to flat this year. He then expects it to be in “positive territory” in 2020 and then accelerate in 2021.
The tepid first quarter cash showing — despite it being better than analysts forecast — has GE in a hole relative to Culp’s guidance. GE ended the first quarter with $73.2 billion in cash and equivalents, up from $68.7 billion a year ago.
For GE, the continued pressured free cash flow is a byproduct of ongoing struggles in most areas of its business — notably the key power business. GE saw operating profit margins decline in two of its six business segments in the first quarter (aviation and power). The renewable energy business swung to a loss of $162 million versus a profit of $77 million a year ago.
Health care remains the standout business for GE — the segment notched 110 basis points of operating margin improvement on the back of sales gains in equipment and services.
Investors chose to ignore the overall lackluster free cash flow early on and instead focus on GE’s profit and cash flow beats. GE’s adjusted first quarter earnings came in at 13 cents a share versus Wall Street estimates for 9 cents a share.
Shares popped 5.7% in pre-market trading.
Even still, GE acknowledged its “better than expected” performance in the quarter was “largely” driven by the “timing of certain items.” Culp said performance for the balance of the year will be more in line with his recent guidance. Meanwhile, Culp reiterated that 2019 would be a “reset year” for GE.
Place your bets accordingly, investors.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi
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https://finance.yahoo.com/news/general-electric-still-has-a-cash-problem-125825784.html
2019-04-30 12:58:00Z
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