GE Stock Is Shrugging Off a Cash-Flow Warning From the CEO -- Barrons.com
By Al Root
General Electric CEO Larry Culp told investors to expect pressure on the manufacturing company's first-quarter cash flows. but the market doesn't appear concerned.
General Electric (ticker: GE) stock opened trading Wednesday with a loss of about 0.5% after Culp spoke at a Barclays investor conference. The shares quickly rebounded and were up about 1.3% in Wednesday morning trading, at $12.92 a share. The move leaves the stock about 2% below its 52-week high, reached last week.
"I think we're going to see some pressure here in the first half, particularly here in the first quarter," Culp told the crowd. "So I think we're going to see here in the first quarter free cash probably in the range of a negative $2 billion." That sounds bad, but GE generates most of its cash flow in the second half of the year. What's more, Culp said $800 million is due to the troubled Boeing (BA) 737 MAX jet.
GE, and its joint venture partner Safran (SAF.France), makes the engines for the MAX, which has been grounded world-wide since mid-March following two deadly crashes inside of five months.
Culp also mentioned the Chinese coronavirus outbreak, a headwind for many companies. Apple (AAPL) said Monday it wouldn't meet its quarterly financial guidance because the virus was disrupting its supply chain, as well has hurting iPhone demand in China. Apple stock dropped Tuesday, but was up 1.4% Wednesday. The shares are less than $2 lower than they were before Apple disclosed the bad news.
Cash flow has been an important metric for GE investors lately. The company is undergoing a turnaround under Culp. He recently finished his first year at the helm and has preached the importance of debt reduction, cost cutting, and improving cash-flow generation.
Investors appear encouraged by management's recent efforts. The stock is up 33% over the past year, beating the comparable returns of the S&P 500 and Dow Jones Industrial Average by 10 to 15 percentage points.