GE Surges as Culp Predicts Positive Cash Flow in Second Half

GE Jumps After Culp Predicts Positive Cash Flow in Second Half

General Electric Co. jumped the most in almost four months after Chief Executive Officer Larry Culp predicted positive industrial free cash flow during the second half of the year.

Key markets are stabilizing and GE is making “good progress” in cutting costs by $2 billion and saving $3 billion in cash to contend with the coronavirus pandemic, Culp said. While the recovery will be gradual, results are improving and GE is poised for continued cash-flow gains through the end of the year, he said.

“I sit here today feeling very confident about where we are and where we’re going despite all of the trials and tribulations that Covid has certainly thrown at us,” Culp said at a Morgan Stanley conference Wednesday.

The CEO’s optimistic tone marks a turnabout from late July, when he stopped short of saying GE would generate free cash flow in the second half. The pandemic has prompted an unprecedented collapse in air travel, gutting demand for the company’s jet engines and crimping sales of other products such as gas turbines and medical equipment.

GE jumped 11% to $6.76 at 2:49 p.m. in New York after advancing as much as 12% for the biggest intraday gain since May 18. The shares had fallen 45% this year through Tuesday, the fourth-biggest decline on a Standard & Poor’s index of U.S. industrial companies.

The Boston-based company burned through $2.1 billion in industrial free cash in the second quarter, less than the $3.3 billion drain expected by analysts. The metric is watched closely by investors as a key gauge of earnings potential at the company’s manufacturing operations.

GE is expected to post free cash flow of about $896 million in the second half of 2020, according to the average of two analyst estimates compiled by Bloomberg.

Recovery Signs

Culp pointed to signs of improvement in several GE business, including a recovery in the use of its medical scanners and in orders for pharmaceutical diagnostics. GE has also seen a continued uptick in global flight departures, which the company tracks as a gauge of demand for jet-engine repairs and sales of spare parts.

The gas-turbine business -- the main source of GE’s cash woes in recent years -- and renewable energy unit “haven’t really been hit hard here in 2020 from Covid,” the CEO said. Turnaround efforts in those operations continue.

“Our markets are by and large stabilizing but not in any way rapidly recovering,” Culp said. “But we’re not going to wait on the markets. That’s why we’re taking the actions that we are.”

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