Cash flows to rebound

CEO Larry Culp’s fast and effective actions have boosted investors’ confidence in General Electric (GE) stock, as is reflected in the massive ~39% upswing in its stock price year-to-date.

Investors also gained confidence in GE on March 14 after Culp promised a rebound in its cash flow in 2020.

Investors Embrace Culp’s View of a Cash Flow Rebound in 2020

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In a press release on March 14, Culp said, “We expect 2020 and 2021 performance to be significantly better with positive Industrial free cash flow as headwinds diminish and our operational improvements yield financial results. We will continue to take thoughtful actions to reduce downside risk and increase upside optionality to create long-term value for our shareholders.”

The industrial conglomerate expects its adjusted industrial FCF (free cash flow) to be negative in 2019 but to make a turnaround in 2020, with positive FCF and the pace of its improvement to further accelerate in 2021. The company expects its 2019 industrial FCF to be in the range of -$2 billion to break-even.

On Mad Money on CNBC, Culp asked shareholders, employees, and retirees to give his management some time. He said, “We have opportunities, we certainly have some problems. It’ll take us a while but if people give us the benefit of the doubt I think they’re going to see improvement over time.”

Outlook for 2019

Although Culp promised a better performance in 2020, he remained cautious about the current year. During a press release, he stated that GE has a complex set of challenges in 2019 and that his management team is undertaking strategic initiatives to strengthen its balance sheet and businesses.

For 2019, the company expects its adjusted EPS to fall YoY (year-over-year) in the range of 8%–23% to $0.50–$0.60. On March 14, Wall Street’s EPS estimate for GE for the year was pegged at $0.70.

GE expects its adjusted industrial organic revenue to grow in the low- to mid-single-digit percentage range. Additionally, the industrial conglomerate expects its adjusted industrial margin to expand in the range of 0–100 basis points. GE’s adjusted industrial margin was 9% last year.

GE’s industrial peers (XLI) 3M Company (MMM) and Crane (CR) are expected to report YoY rises of 1% and 6.4%, respectively, in their 2019 EPS. Honeywell International (HON) is expected to report a marginal 0.4% fall in its EPS.

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