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MarketScreener Homepage  >  Equities  >  Nyse  >  General Electric Company    GE


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GE's Cost Cuts Offset Troubles in Aviation Unit -- 3rd Update

10/28/2020 | 04:53pm EST

By Thomas Gryta

The troubled aviation industry continued to weigh on General Electric Co., which reported another quarter of shrinking revenue, but the conglomerate posted a smaller loss and was able to generate cash from its industrial operations.

Layoffs and cost cutting have helped GE weather the coronavirus pandemic's damage to the commercial airlines that ultimately buy its jet engines. Belt tightening has also helped reverse losses in GE's long-struggling power turbine unit.

While orders for new equipment fell in several of its key businesses, GE said it generated $514 million in industrial free-cash flow in the quarter ended Sept. 30. On that basis, the company also predicted it would generate $2.5 billion in cash in the fourth quarter.

The measure is closely watched as a sign of the health of the company's operations and ability to pay down debt. In the first half of the year, GE's industrial operations burned through $4.3 billion in cash.

"Clearly aviation is the challenge right now," CEO Larry Culp said in an interview, noting improvement in other segments and continuing cost cuts. "We're making more progress and are encouraged by the positive free cash in the third quarter."

The results were better than expected and GE didn't reveal large losses in long troubled units. GE shares rose 4.5% to $7.42 on Wednesday, bucking a broader market selloff. The stock is down about 33% so far this year.

Mr. Culp said the recent rise in new Covid-19 cases isn't a surprise because of the changing seasons but it shows the difficulty in predicting the future trajectory of the pandemic. He expects it will take years for the industry and GE's aviation division to recover.

Mr. Culp recently had his second anniversary in the top job, where he has focused on cutting debt and generating more cash to turnaround the conglomerate. The pandemic hit the company hard because of its reliance on the air travel industry. Revenue fell nearly 40% in GE's aviation business in the latest quarter. The unit is cutting a quarter of its 52,000 workers.

GE also provided reassuring updates on some areas that have had investors concerned. The Boston company said an annual test of reserves in its legacy insurance business resulted in a "small positive margin" with no impact to earnings. The need to bolster its insurance reserves by $15 billion was a key reason GE had to slash its quarterly dividend to a token penny per share. The unit is responsible for long-term care policies that cover nursing-home stays that have proved more expensive than many insurers predicted.

GE's accounting for the insurance business, as well as bookkeeping in its power unit, is under investigation by the federal regulators. The Securities and Exchange Commission recently warned the company of a possible civil-enforcement action over its accounting for the insurance business.

GE said Wednesday it has set aside $100 million to cover potential penalties for all the accounting investigations, and continues to cooperate with the probes. It was the first time GE gave investors such an estimate.

Mr. Culp said the reserve is "appropriate given what we know and given what we can say under the circumstances."

In the latest quarter, the company booked a $400 million charge for its recent decision to stop building new coal power plants and a $200 million charge after an annual review of its aircraft leasing portfolio. GE owns hundreds of jets and is one of the world's biggest airplane leasing companies through its GE Capital unit.

"The things that worried me were all better," said David Giroux, T. Rowe Price Group's chief investment officer for equities and multiasset. "The forward guidance was very encouraging."

Mr. Giroux said an uneventful review of insurance operations was good news, the healthcare division performed well and the company's reserve against multiple federal investigations was smaller than he expected.

He has a long-term outlook on GE's stock, he said, and the pandemic has only delayed the company's turnaround. T. Rowe is GE's top shareholder with about 770 million shares in various funds, an 8.8% stake, according to FactSet.

"It is starting to turn," Mr. Giroux said. "We are starting to see signs that we are heading to the right trajectory here."

Overall, GE reported revenue of $19.42 billion, down 17% from a year ago. Excluding its stake in the Baker Hughes oil business and other assets it sold, industrial revenue fell 12% to $17.88 billion.

The company had a net loss of $1.14 billion, before preferred stock dividends, compared with a loss of $9.42 billion a year ago when it booked hefty accounting charges on the Baker Hughes investment. Excluding restructuring and other charges, GE reported an adjusted profit of 6 cents a share.

Wall Street was expecting an adjusted loss of 4 cents a share on revenue of $18.7 billion.

For years, GE's aviation business was the company's biggest and most profitable. In addition to the pandemic, the business has suffered from the grounding of Boeing Co.'s MAX jet, which runs on its engines. On Wednesday, Boeing outlined plans to cut more jobs and said it is reviewing jet production levels. It expects 737 MAX deliveries to resume before the end of the year.

GE's aviation revenue fell to $4.92 billion in the third quarter from $8.11 billion a year ago. New orders dropped 54% from a year ago. The segment's profit plunged 79% to $356 million.

The unit is now about the same size as GE's other divisions in terms of revenue but the health-care unit, which makes MRI machines, ventilators and hospital equipment, was the biggest in terms of quarterly earnings, generating a $765 million profit.

GE's power unit, which makes turbines for power plants, reported revenue rose 3% to $4.03 billion and swung to a profit of $150 million. The renewable energy unit, which mostly makes wind turbines, basically broke even on a 2% rise in revenue to $4.53 billion.

Write to Thomas Gryta at thomas.gryta@wsj.com

(END) Dow Jones Newswires

10-28-20 1752ET

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Financials (USD)
Sales 2020 79 649 M - -
Net income 2020 3 511 M - -
Net Debt 2020 20 304 M - -
P/E ratio 2020 31,7x
Yield 2020 0,38%
Capitalization 92 855 M 92 855 M -
EV / Sales 2020 1,42x
EV / Sales 2021 1,43x
Nbr of Employees 189 400
Free-Float 74,3%
Duration : Period :
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Technical analysis trends GENERAL ELECTRIC COMPANY
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Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 21
Average target price 9,80 $
Last Close Price 10,60 $
Spread / Highest target 22,6%
Spread / Average Target -7,55%
Spread / Lowest Target -34,0%
EPS Revisions
H. Lawrence Culp Chairman & Chief Executive Officer
Carolina Dybeck-Happe Chief Financial Officer & Senior Vice President
Victor Abate Chief Technology Officer & Senior Vice President
James S. Tisch Independent Director
Francisco D'Souza Independent Director
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