GE CEO Larry Culp Talks Progress, Debt, and Restructuring -- Barrons.com
By Al Root
General Electric CEO Larry Culp is keeping busy, to say the least.
Culp spent some time with investors at Laguna Beach, California on Thursday. Laguana is beautiful, but Culp was working. The seaside locale outside of Los Angeles is the site of Morgan Stanley's industrial conference.
Culp spoke about the two big issues he has faced since taking over at General Electric (ticker: GE) last September: debt and restructuring. He sees signs of progress and thinks the company is moving in the right direction.
Read more: GE Might Need to Sell Equity, Bear Says. Why Investors Shouldn't Worry.
Culp also provided a window into his busy day-to-day schedule, something investors don't often get to see.
"It's been particularly busy the last month because we've had a very full schedule," Culp said in response to an analyst question. Here are just a few of the things Culp and GE management have been up to in recent weeks: kicking off GE's new strategic planning process, an in-depth review at the Aviation and Power businesses, and hosting GE's Global Customer Summit. "And we threw a Board meeting in for good measure," Culp added.
Culp also took time to speak with Morgan Stanley clients. He totaled up the cash coming in the door for investors at the conference. With GE selling down its Baker Hughes (BHGE) stake, selling its stake in Wabtec (WAB), and closing on the biopharma unit sale to Danaher (DHR), the company is generating about $38 billion in cash proceeds.
"And this morning, we began to signal how we tend to put those sources to good use with a $5 billion debt tender split 50-50 between the U.S. and Europe," said Culp. "That will help us begin to, I think, show additional progress, not only in generating sources [of cash] but putting them to work."
The CEO added that it will take about $25 billion in debt repayments to bring the industrial debt load down to his goal of 2.5 times debt to Ebitda, or earnings before interest, taxes, depreciation, and amortization.
Moving to the power business turnaround, Culp explained GE is spending $3.5 billion over three years to restructure its troubled division. Spending has come in lower than expected in 2019, which allowed GE to increase its full year free cash flow guidance when the company reported second-quarter earnings on July 31.
Culp said GE continues to push the businesses to make sure they're meeting restructuring goals. "Now remember, that's particularly focused again in Power, Renewables and corporate. And if you look there, I think we've got basically a 20% head-count reduction over the last 18 months in that population," he said.
It isn't, however, all about near-term woes for Culp, he's also thinking about expanding profit margins down the road. "When we talk about margins and cash, we need to do a better job making sure that folks understand that it's not just about restructuring," he said. "We need to be smart in terms of the business that we pursue, pricing, terms and the like. We need to be better, particularly with respect to projects in the way we execute."
GE will report third-quarter earnings sometime in late October or early November. It will be must-see TV for industrial investors who are eager to hear about debt, the turnaround, and GE's long-term care insurance book of business (which resides inside GE Capital).
GE shares fell 0.9% on Thursday, worse than the 0.2% gain of the Dow Jones Industrial Average. For the year, GE shares have returned about 27%, better than the 17% gain of the Dow over the same span.