General Electric on Thursday said it expects profits to drop below Wall Street estimates in 2019 but cash generation to turn positive over the next two years, as CEO Larry Culp advances on his plan to reduce debt and improve underperforming sectors at the industrial giant.
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The forecast is likely to be welcomed by shareholders, who had strong reactions to Culp’s comments earlier in the month that the Boston-based conglomerate would have negative cash flow in 2019 and were eager for financial projections to back up the repeated promises to improve the struggling company.
"This is a game of inches every single day," Culp told investors on Thursday. "This year will be more about what we do than what we say."
GE expects profits to hit as high as 60 cents per share in 2019, less than analysts expected.
Appointed to the top spot in October, Culp has quickly worked to try to improve the firm’s financial performance by selling off key assets, including its biopharma business -- which Danaher purchased for $21.4 billion – and the remaining stake in field services company Baker Hughes.
And more changes are on the way.
Culp has pledged to overhaul GE’s flailing power sector, which makes turbines for power plants. The multiyear endeavor is expected to eat up significant portions of available cash.
He is aiming to reduce costs in the segment by $800 million over the next two years, but cash flow is expected to be negative in 2019 and 2020. The company plans to spend over $2 billion on restructuring in 2019 and a singificant portion of that is likely to be used on the power sector.
GE Capital, the firm’s lending arm, will also require an additional $4 billion cash infusion in 2019, CFO Jamie Miller said. The company previously committed to pouring $4 billion into the business, which Culp hopes to return to cash positive by 2021.
The company cut 36 percent of its corporate headcount -- roughly 10,000 workers -- but more layoffs are expected, according to Miller. GE declined to provide a target for headcount.
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GE still has billions in debt, though the sale of the biopharma sector is expected to allow the company to eventually pay down a portion of that.
Last year, Fitch Ratings, S&P Global Ratings and Moody’s Investors Service all downgraded GE to just above junk level. The company cannot endure another credit downgrade, analysts say, and will have a key focus on reducing its core debt load.
“We will continue to take thoughtful actions to reduce downside risk and increase upside optionality to create long-term value for our shareholders,” Culp said in the statement.
GE plans to use $12 billion in 2019 to pay off intercompany debt and maturing long-term debt, Miller said.
The company previously slashed its quarterly dividend to a penny, but Culp recently said it would rise to a level “in line with our peers.”