GE profits accelerate in first quarter
General Electric returned to multibillion-dollar profitability in the first quarter of 2019, earning $3.6 billion during a period when it announced the $20 billion sale of a life sciences division and continued to scale down its GE Capital division based in Norwalk.
It was GE’s first quarterly profit of at least $1 billion since the third quarter of 2017, with the recently concluded first quarter representing CEO Larry Culp Jr.’s second fiscal period leading Boston-based GE after replacing John Flannery last October.
GE shares were up 6 percent after Tuesday’s opening bell to just above $10.30, having gained about $2.35 on the year to date.
The increased earnings occurred even as GE revenue dropped 2 percent from a year earlier to $27.3 billion, though the company’s order backlog is up 6 percent from a year ago to $374 billion.
Speaking Tuesday on a conference call with investment analysts, Culp reiterated 2019 as “a reset year” for GE with intensified operational restructuring, without stating immediately any impact on jobs. GE recorded $239 million in charges against first-quarter earnings for restructuring costs as the company transfers corporate functions to subsidiaries, leaving the future of those jobs up to those entities and shedding payroll through other means to include outsourcing, layoffs and leaving positions unfilled from any employees leaving the company.
Asked by an investment analyst on employee morale amid the rapid-fire change at GE, Culp acknowledged the challenges for its people, adding “we don’t take anybody for granted.”
GE has a new head of human resources reporting directly to Culp, with Kevin Cox having held similar roles at American Express and PepsiCo. Cox will deliver soon to the board of directors an initial report to “drive the cultural change we aspire to,” Culp said.
Culp indicated the company is still assessing risk to its expected revenue flows from any interruption in the production of the grounded Boeing 737 Max passenger jet, which is equipped with engines from a joint venture of GE Aviation and France-based Safran.
GE Aviation remains the conglomerate’s largest division and its fastest-growing, with revenue up 12 percent in the first quarter to just under $8 billion. GE Power continues to lag other GE subsidiaries, with a 22 percent drop in sales to below $5.7 billion.
Culp said first-quarter revenue included sales transactions that customers moved up from dates later this year. During the first quarter, the company completed the $2.9 billion sale of its GE Transportation locomotive and rail division to Pennsylvania-based Wabtec. And it reached a $20 billion agreement to sell its GE Life Sciences division to Danaher, formerly led by Culp.
In mid-April, GE signed a $1.5 billion settlement with the U.S. Department of Justice over subprime home loans extended between 2005 and 2007 by its WMC Mortgage division that is now in bankruptcy. As of March, one active WMC lawsuit remained against GE in Connecticut federal court, with GE in settlement discussions with TMI Trust, which asserted claims on $800 million in mortgage loans.
Between January and March, GE whittled down the asset base of its GE Capital subsidiary by another $1.1 billion to $122 billion, with GE selling to Mitsubishi UFJ Financial Group a division that provides financing for companies to get an accelerated, discounted repayment of outstanding invoices they are owed.
In Norwalk, the company surrendered office space it has been subleasing from liquor giant Diageo at 801 Main Ave. that had been used by GE Capital, with the finance subsidiary having its main office next door in the Towers complex at 901 Main Ave.
GE Capital contributed $137 million in profits to the corporate parent’s first-quarter totals, with revenue up 2 percent to $2.2 billion despite its dwindling asset base to generate cash flow.
Jamie Miller, chief financial officer of GE, tempered GE Capital’s full-year outlook in describing as “a sizable negative” two sets of GE Capital dividends to be paid out this year to investors holding preferred stock.
Next week, GE will have its annual meeting of investors at 10 a.m. May 8 at the Westchester Marriott at 670 White Plains Road in Tarrytown, N.Y. The event will also be webcast.