General Electric’s cash flow forecast disappoints and stocks fall

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The logo of the American conglomerate General Electric is visible on the company building in Belfort, in France, on October 19, 2019. REUTERS / Vincent Kessler

(Reuters) – General Electric (GE.N) plans to burn more liquidity than expected in the second quarter, while the industrial conglomerate is grappling with weak aeronautical activity due to the coronavirus crisis, general manager Larry Culp said on Thursday.

Shares of GE, which manufactures aircraft engines and power plants, fell 3.6% to $ 7.03 after Culp also warned that the company’s 2020 free cash flow would be negative.

GE’s free cash flow in the second quarter is expected to be between $ 3.5 billion and $ 4.5 billion, he said at a conference. That was more than the analysts’ average estimate of a $ 2.5 billion exit, according to Refnitiv IBES data.

The COVID-19 pandemic resulted in an almost complete cessation of air travel, hitting GE’s aviation sector at a time when its energy sector was struggling with sluggish demand.

The company cut thousands of jobs to save money and last month released its forecast for the whole year, citing uncertainty caused by the pandemic.

“Losing that much money adds significantly to GE’s high net leverage,” said Gordon Haskett analyst John Inch, adding that the magnitude of GE’s cash outflows puts it out of sync with most his industrial peers.

Culp said that GE’s commercial jet engine installations would drop by about 45% in the second quarter, as sales of aircraft parts will drop by about 60%.

The coronavirus crisis, however, has boosted sales of the company’s health care products, with orders for the second quarter expected to increase by more than 100%, said Culp.

Report by Ankit Ajmera and Rachit Vats in Bengaluru; Editing by Aditya Soni

Our standards:Principles of the Thomson Reuters Trust.

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