GE Surprises Markets With Unexpected Quarterly Profit And Cash Flow In Q3

A quarterly profit and a positive cash flow were reported by General Electric Co on Wednesday which surprised analysts and the market. This performance was driven by cost cuts and improvements in its power and renewable energy businesses.

The shares of the company rose by 10 per cent on the news.

For the third quarter, a free cash flow of $514 million from industrial operations was reported by the Boston-based industrial conglomerate compared to an outflow of $2.1 billion in the previous quarter. The average analyst estimate was an outflow of $876 million, according to Refinitiv,

In the fourth quarter, the industrial free cash flow is expected by it to be at least $2.5 billion and to be in the positive for 2021, GE said.

There was a 6 per cent growth in adjusted profit for the quarter while average of analysts’ estimate was a loss of 4 cents per share, according to data from Refinitiv.

After a year to date drop of about 40 per cent this year, the share price of the copany propped up by about 10 per cent on the news.

“We are managing through a still-difficult environment with better operational execution across our businesses,” said Chief Executive Lawrence Culp.

By implementing strategies for improving free cash flow and cutting debt, a turn around of the company is being attempted by Culp. But those efforts have been hit by the novel coronavirus pandemic as the company’s aviation unit, which is usually thee most profitable and most cash-generative business of the company, was hit hard.

To address the uncertainty and the economic hit of the pandemic, cost cutting of $2 billion is targeted by the GE while also aiming to generate cash saving of $3 billion. it has managed to realise about 75 per cent of those targets so far, the company said.

So far, the company has managed to reduce its headcount by more than 15,000 and is targeted to further reduce the number of employees by another 20,000 by the end of 2020 as part of its cost-cut drive, said GE’s Chief Financial Officer Carolina Dybeck Happe while interacting with investors on an earnings call.

Despite a double digit drop in new orders, the revenue generated from both power and renewable energy businesses of the company recovered during the third quarter in comparison to last quarter. Revenue at GE’s aviation unit fell an annual 39 per cent in the latest quarter.

The earnings report would “reinforce the messaging that GE has fundamentally bottomed”, said analysts at Gordon Haskett Research Advisors.

But there is a new risk of prolongation of the downturn in the aviation industry because of a resurgence in new Covid-19 cases. The slump in the aviation industry has hit both large and small suppliers as airlines have cut back sharply in maintenance spending.

(Adapted from Investing.com)

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