GE’S rebound gathers steam

CHICAGO • General Electric Co. on Tuesday offered an upbeat outlook for its business this year after reporting a surge in quarterly free cash flow, sending its shares soaring in early trade.

The Boston-based industrial conglomerate predicted free cash flow of us$2.5 billion to us$4.5 billion this year after generating cash flow of us$4.4 billion in the fourth quarter.

That compares with refinitiv’s average analyst estimate of us$3.03 billion for 2021 and about us$2.6 billion for the latest quarter.

The firm had previously predicted a cash flow of at least us$2.5 billion in the fourth quarter and a return to positive cash flow for 2021.

Free-cash flow is closely watched by investors as a sign of the health of ge’s operations and ability to pay down debt.

With the earnings report signalling progress in CEO Larry Culp’s turnaround plan, ge’s shares opened higher and surged as much as 11.3 per cent. The stock closed 2.7 per cent higher at us$11.29 in New york.

In a phone interview, Culp described the company’s 2021 outlook as “achievable” on the back of a “strong” performance in health care and “continued progress” in its power and renewable units.

“Those three businesses, for the most part, have found a level of stability and relative predictability amid the pandemic,” he told reuters.

Both the power and renewable energy divisions saw a double-digit growth in equipment orders in the latest quarter.

The surge in ge’s cash flow has put “lingering liquidity concerns” to rest, analysts at gordon Haskett wrote in a note.

Since taking over the company’s reins in 2018, Culp has been trying to revive ge’s fortunes by improving free cash flow and cutting debt. However, the coronavirus pandemic hit those efforts by hammering the company’s aviation unit, usually its most profitable and most cash-generative segment.

In response, ge cut costs by more than us$2 billion and took other steps to save us$3 billion in cash last year, resulting in thousands of layoffs at its aviation unit.

Culp said the unit will likely see a “little bit” of more cost cuts this year. Those details, however, are still being worked out, he said.

ge expects aviation revenue to be flat to up this year with air traffic forecast to recover in the second half.

Culp said while the return to service of Boeing Co.’s 737 Max jets — which use ge’s engines — is a “positive” for the conglomerate, it will not change the trajectory of its aviation business in the near-term.

Overall, the company expects an improvement in its industrial business this year, forecasting a low-single-digit growth in revenue. Industrial revenue declined 13 per cent in 2020.