By Thomas Gryta
General Electric Co. warned its first-quarter earnings would be below its prior forecasts and pulled its financial guidance for the full year, citing the disruptions and uncertainty caused by the coronavirus pandemic.
The industrial conglomerate is the latest major company, from FedEx Corp. to Starbucks Corp., to withdraw its financial forecasts as the rapidly spreading virus, which causes an illness called Covid-19, disrupts the global economy, travel and daily life.
GE, which has announced job cuts and furloughs in recent weeks, said Thursday it expects first-quarter earnings to be materially below its prior estimate of 10 cents a share. It still expects cash flow from its industrial operations to be about negative $2 billion for the March quarter.
"Given the evolving nature of the Covid-19 pandemic, at this time, GE cannot forecast with reasonable accuracy the full duration, magnitude, and pace of recovery across our end markets, operations, and supply chains," the company said.
GE shares rose 17 cents to $7.47 in early trading. The shares have fallen about 35% so far this year, compared with a roughly 18% drop in the S&P 500 index.
Analysts are projecting earnings of 10 cents a share and negative cash flow of $2.17 billion for the first quarter, according to FactSet. Wall Street was projecting earnings of 45 cents a share for the year on cash flow of about $400 million.
Before the Covid-19 illness emerged, GE had been restructuring its operations and trying to pull out of a slump caused by weak demand for its power generation equipment and troubles in its GE Capital unit. In recent years, GE had slashed its quarterly dividend to a token penny per share payout. The company has sold assets, exiting its transportation and oil division, in order to pay down its debt.
The company had about $36 billion in cash at the end of 2019, along with $35 billion in untapped credit lines, according to its annual report. GE on March 31 closed the sale of its biopharma division to Danaher Corp. for proceeds of more than $20 billion in cash.
GE said the disparity between the first-quarter earnings and cash-flow expectations is because of "non-cash and timing items in Aviation, Renewable Energy, and GE Capital." The company's aviation division makes jet engines for airliners produced by Boeing Co. and Airbus SE, while its financial services arm has a large airplane leasing operation.
Last week, GE said it was furloughing half of the U.S. aviation manufacturing workers for four weeks, citing growing pressure on the global aerospace industry from the pandemic, which has grounded thousands of planes.
The move came after GE said on March 23 that it would lay off about 10% of its U.S. jet-engine workforce, or about 2,500 employees, and furlough half of its maintenance and repair employees. It said that move would save $500 million to $1 billion for the year.
"We are taking swift actions across the company to position GE to come out stronger on the other side of the Covid-19 crisis," Chief Executive Larry Culp said Thursday. He said the proceeds from the Danaher deal give GE flexibility to strengthen its balance sheet.
The aviation division, with about 52,000 workers around the world, has been hit by the grounding of Boeing's 737 MAX, which cut GE's cash flow by $1.4 billion in 2019. The division is still important to GE's turnaround as it produced $4.4 billion in cash flow last year.
The company is scheduled to report its quarterly results April 29.
Write to Thomas Gryta at email@example.com