GE Boss Warns of Quarterly Cash Drain From Boeing MAX -- Update

By Thomas Gryta 

Larry Culp, chief executive of General Electric Co., cautioned investors that the manufacturing giant would burn about $2 billion in cash flow in the first quarter.

Mr. Culp cited pressure from the extended grounding and production halt of Boeing Co.'s 737 MAX aircraft. A GE joint venture with France's Safran SA makes the engines used on the jet.

Mr. Culp, speaking at a Barclays PLC investor conference Wednesday, said there will be pressure on GE's ability to generate cash in the first half of the year but he expects GE to generate cash from operations later this year.

He hadn't previously provided a first-quarter target, though he has forecast $2 billion to $4 billion in positive cash flow for the full year. A year ago, GE burned through $1.2 billion in cash during the first quarter of 2019 before ending the year with $2.3 billion of total cash flow from its industrial operations.

The cash flow pressure will likely result in first-quarter earnings lower than last year, Mr. Culp said.

"We are a back-half cash business," Mr. Culp said Wednesday, noting it will take time to change that pattern. "It's going to be, I think, difficult, particularly in light of the 737 MAX dynamics with Boeing, to do that."

GE shares rose 17 cents, or 1.3%, to $12.92, just below a 52-week high hit last week. Mr. Culp also was set to speak later today at a Citigroup Inc. conference.

The grounding of 737 MAX jets after two fatal crashes cut GE's 2019 cash flow by $1.4 billion in 2019, but the aviation business -- the conglomerate's largest business by revenue -- still produced $4.4 billion in cash flow for the year.

Mr. Culp also said a long-awaited review of its legacy insurance holdings came in better than expected in the first quarter, with an expected $100 million increase to its contributions for the policies.

The company recorded a $1 billion charge related to the insurance business in last year's third quarter after testing whether it had enough cash reserved for its expected future obligations. In 2018, GE shocked investors when it committed $15 billion in additional reserves for the policies.

The coronavirus outbreak in China is "certainly a bit of a wild card for us, like everybody," Mr. Culp said. GE has been prioritizing delivery of health-care equipment to hardest hit areas and has donated patient monitors and other equipment.

Mr. Culp said the completion of GE's $21 billion sale of its biopharma business to Danaher Corp., his former company, was "in sight." GE plans to use the cash to pay down debt and is awaiting regulatory approval. It most recently said the sale would close by the end of March.

At the Barclays conference, he spoke of efforts to improve both operations and the company culture.

GE's power division has been a drag for years and the company projected last month that 2020 cash flow from the division would be negative. On Wednesday, Mr. Culp said cash flow from that business would be better than the negative $1.5 billion in 2020 but would still be negative.

He applauded the improvements in the division but said any time a business division reports negative free cash flow "there's a limit to how much we're going to celebrate that."

Mr. Culp is trying to shift the culture inside GE to make sure bad news travels faster than in the past. "What we're really trying to encourage folks to do is make sure that they're telling me, or they're telling their boss, what they think, as opposed to what they think their boss might want to hear," Mr. Culp said.

Write to Thomas Gryta at [e-mail]

(END) Dow Jones Newswires

February 19, 2020 11:51 ET (16:51 GMT)

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