Shares of General Electric closed down on Wall Street on Tuesday after CEO Larry Culp forecasted free cash flow at the struggling industrial giant would be negative in 2019, raising concerns among some analysts over the future of the company's debt rating.
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“We have to pay the piper in 2019, we’re going to do that,” Culp said at an investor conference hosted by J.P. Morgan.
The Boston-based firm in 2018 had $4.5 billion in cash flow, or the amount of money remaining after expenses and capital expenditures are taken out. But increased restructuring costs -- which are expected to top in 2019 the $2 billion spent last year -- and losses in GE's struggling power sector are weighing on the company.
"Cash flow is one of the most important elements that factor into the ratings outlook by the debt ratings agencies," Gordon Haskett analyst John Inch wrote in a note on Tuesday. "We believe the risk of additional debt ratings downgrades has now increased."
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Culp noted that improving the power segment would not be a quick process, a sign to investors that his wide-ranging efforts to turn around the conglomerate would continue well beyond 2019.
"We would not expect a fundamental turn for this business before late 2021 at the earliest or longer depending on future equipment core order results," Inch said.
Appointed to the top spot in 2018, Culp has quickly worked to shed assets at the once-iconic U.S. brand. Despite prior efforts from his predecessor to reduce its broad portfolio, Culp recently said GE still has “too much debt” and outlined broad plans to reduce it.
“Once we put our balance sheet in a healthier place, we’ll be in a better position to play offense across all our businesses,” he wrote in a note to investors.
Culp also said the firm would potentially reverse a decision to slash the quarterly dividend to a quarter and put it “in line with our peers.”
Last month, GE finalized a sale of its biopharma sector to Danaher Corp. for $21.4 billion, putting a large dent in the firm’s $110 billion debt load and “further alleviating any investors concerns over GE’s liquidity,” according to RBC Capital Markets.
“Culp and team are methodically executing on their deleveraging commitments, and simultaneously dispelling any lingering notion that GE is facing some sort of liquidity crisis,” analyst Deane Dray wrote.
The company also recently closed a merger of GE Transportation with rail equipment producer Wabtec.