GE Burns More Cash Than Expected as Jet-Engine Unit Drags

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(Bloomberg) — General Electric Co. burned more cash than analysts expected in the first quarter, crimping Chief Executive Officer Larry Culp’s turnaround push after recent signs of financial improvement.

Cash use by the industrial divisions totaled $845 million in the first quarter, GE said in a statement Tuesday. That was worse than the burn of $663.9 million predicted by Wall Street. Adjusted earnings of 3 cents a share topped the 1.4-cent average of analyst estimates compiled by Bloomberg.

The results signal a sluggish start for GE’s promised financial gains in 2021 after the coronavirus pandemic last year upended Culp’s drive to nurse the humbled giant back from an epic corporate collapse. GE, which surprised Wall Street with strong cash flow in the second half of 2020 and a robust outlook for further gains this year, is banking on Covid-19 vaccinations to spur air travel and rekindle demand for its jet engines and related services.

Air travel is recovering in the U.S. and activity in China is above 2019 levels, “but you’ve got other parts of the world which are clearly going to be more challenged,” Culp said in an interview. “What’s happening in India is nothing short of a humanitarian crisis and we see that. It’s our second largest footprint for GE, so we’ve got unfortunately very good visibility on all of that.”

The shares fell 2.6% to $13.22 at 9:38 a.m. in New York. GE climbed 26% this year through Monday, while a Standard & Poor’s index of U.S. industrial companies advanced 14%.

Seasonal Weakness

Cash generation is typically weak in the first quarter for GE, which also makes power equipment and medical scanners. Culp said GE was close to breaking even on a cash-flow basis in the period, excluding an $800 million headwind from the elimination of most of its factoring, a practice in which the company sells receivables to a partner to raise short-term cash.

GE included the factoring hit in its first-quarter results, but plans to adjust out the effects starting in the second quarter, Culp said. So while another blow of as much as $4 billion is likely in the second quarter from the elimination of factoring, that will be excluded from its cash-flow numbers.

“We will take great pains as we go through the year to explain it in a way that represents our underlying operating reality,” Culp said.

GE’s sales fell 12% to $17.1 billion in the first quarter. Analysts had expected $17.6 billion. The company maintained its 2021 financial outlook.

The steady forecast made for a “negative contrast” with many multi-industry rivals that have raised their outlook, John Inch, an analyst at Gordon Haskett, said in a note to clients.

Busy Quarter

The results cap a busy quarter in which GE announced the $30 billion sale of its jet-leasing business to Ireland’s AerCap Holdings NV, a deal that will spawn a behemoth aircraft lessor. With the transaction, which is expected to close by early next year, GE is unloading the last major vestige of its troubled GE Capital financial-services arm.

The results of what’s left of GE Capital will be reported in the company’s industrial balance sheet. GE has said it plans to use proceeds from the deal to repay another $30 billion in debt, bringing its total reduction of borrowing since 2018 to $70 billion.

Culp last year slashed jobs and hoarded cash after the pandemic crushed global air travel and threatened his repair job at GE. The company’s sprawling jet-engine division continues to weigh on results as customers Boeing Co. and Airbus SE contend with weak demand for new planes. Sales in the aviation unit fell 28%, the biggest drop among GE’s industrial units.

GE’s engine-maintenance business also took a hit, with U.S. flight departures in mid-April down 30% from pre-pandemic levels. The Boston-based company tracks departures as a gauge of demand for lucrative spare parts and services. GE has said it expects the market to begin recovering in the second half of this year.

(Updates shares in fifth paragraph)

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