GE ends tumultuous year with stronger cash flows

General Electric ended a tumultuous year of lay-offs, debt repayments and restructuring with far stronger cash flows than forecast, boosting investor confidence in Larry Culp’s turnround of the US industrial conglomerate. 

Improving orders in GE’s power and renewable energy division drove industrial free cash flow to almost $4.4bn in the fourth quarter, compared to a target of at least $2.5bn, allowing the company to return to positive cash flow for the full year, 12 months ahead of schedule. 

Shares in the group were up more than 9 per cent to $12.03 in pre-market trading, putting them back to the level at which they were trading a year ago, before GE began to feel the effects of a pandemic that took a particularly heavy toll on its aircraft engines business. 

“Momentum is growing across our businesses. We are in leading positions to capture opportunities in the energy transition, precision health and the future of flight,” Mr Culp told investors. 

Adjusted earnings for the quarter were down 60 per cent at 8 cents per share, and GE’s preferred measure of industrial organic revenues dropped 14 per cent. Its power, renewable energy and healthcare divisions all reported improved profit margins. 

For 2021, the group forecast organic revenue growth “in the low-single-digit range”, an improvement in industrial profit margins of 250 basis points or more and adjusted earnings per share of 15 to 25 cents. Industrial free cash flow should reach $2.5bn to $4.5bn, it said, compared with market expectations of about $3bn.

GE cut more than $2bn from its cost base in 2020, including thousands of job losses in the aviation business which supplies Boeing and has been hit hard by the grounding of flights around the world during the pandemic. 

Aviation orders were down 40 per cent year on year in the fourth quarter but up more than 50 per cent from the third quarter. GE said it came close to generating positive free cash flow in the period.

Mr Culp said GE had cut $16bn from its debt in 2020, ending the year with an order backlog of $387bn, down 4 per cent year on year but heavily skewed towards services where it makes its highest profit margins.

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