By Alwyn Scott and Sanjana Shivdas
(Reuters) – General Electric Co (N 🙂 raised its 2019 forecast on Wednesday amid modest improvement at some of its industrial units, but posted net loss and raised investment concerns, sending its shares lower.
Boston-based maker of engines, power plants and medical devices also said chief financial officer Jamie Miller, who was appointed in October 2017, plans to retire after a successor is hired in the coming weeks.
GE seemed to delight investors by saying it may generate as much as $ 1 billion in free cash flow this year, compared to a potential $ 2 billion outflow it anticipated in May. GE also raised its profit forecast by 5 cents a share.
"Get some relief from the high EPS and free cash flow" expected, Barrels (LON 🙂 analyst Julian Mitchell said.
But GE's portfolio of low-margin industrial companies remains a concern. GE posted its red ink again after two quarters of profit due to a $ 744-million bounty charge for its commercial grid. GE also spent less on restructuring than analysts expected.
"The EPS growth of 5 cents … is less than this quarter's 6-cent tax benefit," Gordon Haskett analyst John Inch said in a note, referring to a single GE reserve in the quarter. The cash flow increase "appears to be heavily caused by … reduced cash restructuring," he added.
After increasing 4 percent in pre-market trading, GE shares fell 2.5 percent at $ 10.25.
(GRAPH – GE shares under CEO Culp: https://tmsnrt.rs/2yqnVjR)
GE's adjusted industrial free cash flow was a negative $ 1 billion in the quarter. While that was at the better end of the $ 1 billion to $ 2 billion negative that General Manager Larry Culp indicated in May, it reflected the weak profit margins and sluggish cash flow that hurt GE's industry performance, Culp said.
GE's commercial power, which has long been dragging revenue, has garnered $ 117 million in profits. But its relatively strong aviation business has suffered as problems escalate with Boeing's 737 MAX jetliner, which regulators launched in March.
"Free cash flow is the metric that everyone cares about," said Deane Dray, an analyst at RBC Capital Markets.
Investors watched with concern as GE's cash generation failed to keep pace with earnings in recent years, and worried that GE's cash flow performance was down from stated results. GE was known to manage earnings, but in May, Culp said he would focus on generating money and letting profits be "almost as a by-product," Dray said.
However, despite posting a loss, GE has lifted its annual forecasts. It is now expected that industrial organic revenue growth will make "mid-digit" percentage increases, up from GE's earlier forecast of "low to mid-digit levels."
It also raised adjusted earnings per share from 5 cents to between 55 cents and 65 cents, and changed its forecast of industrial free cash flow to a negative $ 1 billion and a positive $ 1 billion, from 0 to a negative $ 2 billion.
GE's loss from continuing operations attributable to shareholders was $ 291 million in the quarter ended June 30, compared to a profit of $ 679 million a year earlier.
Loss per share of continuing operations was 3 cents down from a profit of 8 cents, the company said. On an adjusted basis, GE earned 17 cents per share, including a one-time taxable gain of 6 cents. That compares to analysts' estimates of 12 cents on average, according to IBES data from Refinitiv.
Total revenue fell 1.1% to $ 28.8 billion.