11.32 +0.03 (0.27%)
Pre-market: 7:47AM EST
|Bid||11.31 x 45900|
|Ask||11.34 x 41800|
|Day's range||11.18 - 11.35|
|52-week range||6.40 - 11.58|
|Beta (3Y monthly)||1.14|
|PE ratio (TTM)||N/A|
|Earnings date||29 Jan 2020|
|Forward dividend & yield||0.04 (0.35%)|
|1y target est||10.42|
General Electric's (GE) advanced 2 MW turbines will help ENGIE North America in providing clean and renewable energy in Oklahoma and South Dakota.
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. Foreign companies continue to invest more in China even after President Donald Trump called on U.S. firms to look elsewhere, as the rising spending power of 1.4 billion people proves too hard to resist.Companies from Tesla Inc. to Walmart Inc. are expanding operations in the world’s second-biggest economy, joined by counterparts from Korea, Japan and Europe. That’s helping offset the departure of goods manufacturers that have had to rethink supply chains after U.S. tariffs made their products more expensive.Foreign direct investment into China rose nearly 3% in the first nine months of 2019 from a year earlier, according to the Ministry of Commerce, the same pace as 2018’s increase. While the U.S. outstripped that increase last year, investment has dropped off since Trump became president.“Multinational firms are now more likely to invest in China since serving the market from abroad will be risky given the mutual trade barriers that have been erected and the fact that any truce in the trade war is likely to be only temporary,” said David Dollar, a senior fellow at the Brookings Institution in Washington.Almost 75% of China’s inbound investment is now into services, utilities and other sectors aimed at the domestic market, said Dollar, a former U.S. Treasury attache in Beijing. If anything, the trade war is encouraging companies to ensure they have a China base, he said.That’s the opposite of what President Trump has pushed for: in August the president tweeted that U.S. companies should “immediately start looking for an alternative to China.”“If you go to major U.S. companies and say, ‘well the politics in D.C. says we have to decouple so you are going to leave the China market,’ they would say ‘no we can’t because the prize is too big’,” Arthur Kroeber, head of research at Gavekal said in a presentation in Hong Kong this month.One complication in analyzing the trend is the difficulty in determining how much of the spending represents real investment, and how much is Chinese companies moving money offshore and then bringing it back to the mainland. Some three quarters of China’s FDI in 2018 came from Hong Kong, the British Virgin Islands or the Cayman Islands, which a recent International Monetary Fund report called sources of “phantom FDI.”EV BoomYet there’s also plenty of news demonstrating the big bet on China’s consumer. Tesla is eyeing mass production out of its first factory outside the U.S. in a plant near Shanghai for which the automaker has received as much as $521 million in loans from Chinese banks. Such spending generates a hive of activity right along the supply chain.LG Chem Ltd., the world’s second-biggest manufacturer of lithium-ion battery cells and said to be one of Tesla’s initial suppliers for its made-in-China Model 3 cars, said in October it plans to invest about $430 million in its Chinese business. In June, it teamed up with Geely Automobile Holdings Ltd. on a joint venture to produce electronic vehicle batteries.“China is a focal point for our battery investment,” spokesman Yoo Won Jae said in an interview this month.Economic BoostSuch inflows could help put a floor under an overall slowdown in investment, helping China hit its jobs targets even as the economy grows at its slowest rate in decades.Among other recent announcements:General Electric Co.’s GE Renewable Energy announced in July investments for undisclosed amounts in a new offshore wind factory and operation and development centerBASF SE in January signed a framework agreement with the government of Guangdong Province for a $10 billion manufacturing complex. In a first for a foreign chemical maker, BASF received permission to own 100% of the project rather than work with a local partnersWalmart in July said it will spend 8 billion yuan ($1.1 billion) on distribution centers in ChinaTrade war or not, the lure of 1.4 billion people can’t be ignored, AstraZeneca Plc Chief Executive Officer Pascal Soriot said in an interview at the second annual China International Import Expo in Shanghai. “We have to invest more in China.”Chinese investors have received a frosty reception in the U.S. By contrast, American companies are still being welcomed in China, according to Ker Gibbs, president of the American Chamber of Commerce in Shanghai.“At the provincial and municipal level, we sense an even heightened degree of enthusiasm for foreign investments,” he said. “They are very much courting us.”\--With assistance from Heesu Lee, Dong Lyu and James Mayger.To contact the reporters on this story: Bruce Einhorn in Hong Kong at firstname.lastname@example.org;Enda Curran in Hong Kong at email@example.comTo contact the editors responsible for this story: Malcolm Scott at firstname.lastname@example.org, ;Emma O'Brien at email@example.com, Bruce Einhorn, James MaygerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- The high-pressure turbine blades in a Trent 1000 passenger jet engine have to withstand temperatures far above the melting point of the nickel alloy from which they’re made. It’s a fiendish technical challenge for the engine’s British manufacturer, Rolls-Royce Holdings Plc — comparable to trying to stop an ice cube melting inside a kitchen oven on full blast. The solution found by the company’s engineers was to blow cool air through tiny holes in the blades. Unfortunately this clever approach has encountered some unexpected problems.Boeing 787 aircraft operated by British Airways, Norwegian Air Shuttle, Virgin Atlantic and others have been grounded in recent months for inspections and repairs because the Trent 1000 engine blades have been degrading faster than anticipated. It’s the type of problem that’s becoming common in the industry as the demands placed on engines become ever greater.The expense of dealing with these things is rising too. Last week, Rolls-Royce quantified the cost of fixing various Trent 1000 issues at 2.4 billion pounds ($3.1 billion), a cash outflow the debt-laden manufacturer can ill afford.Few inventions have done more to transform our life over the past century than jet engines. They’ve let people travel faster and further, and they’re remarkably safe. Passenger fatalities like the one caused by a turbine failure on a Southwest Airlines flight last year are rare. Developed at enormous expense and using innovative new materials, the most recent “powerplants” (to use engines’ industry name) are comparatively quiet and fuel efficient.Yet these innovations have taken the technology closer to its technical limits and reliability issues have crept in. “By pushing the envelope on thrust and efficiency, things have started to go wrong elsewhere in the system,” says Nick Cunningham at Agency Partners. This is worrying because companies are under pressure to build even more efficient propulsion systems to curb carbon emissions. Rolls-Royce’s problems appear the most serious — some 40 787s powered by its engines are parked — but this is an industry-wide issue. Forced to ground planes and adjust flight schedules, airlines have resorted to leasing replacement aircraft and have told engine manufacturers to pay compensation.In September Tim Clark, the boss of Emirates, said manufacturers are delivering aircraft that don’t do what was promised. “Give us airframes and engines that work from day one. If you can’t do it, don’t produce them,” he said.The laws of science aren’t the only thing testing the engine makers. Airbus SE and Boeing Co. have brought several new passenger jets to market in quick succession and their powerplant suppliers have had to ramp up production rapidly. A lot of new demand is from emerging markets where dusty or polluted air can put additional strain on engines.Airbus production was thrown into chaos last year by engine glitches involving Pratt & Whitney’s geared turbofan (GTF) for the A320neo, Airbus’s top-selling jet. More recently the launch of Boeing’s 777x wide-body aircraft was pushed to next year after the premature wearing out of a General Electric engine component.It’s one thing for an engine to miss tough production targets, but quite another for engines to fail once they’re in service. “Engine manufacturers have always had teething problems but in four decades I’ve never seen anything like the list of technical issues they’re been having lately,” says John Strickland, director of JLS Consulting. This month India threatened to ground scores of Airbus A230neo jets operated by domestic carrier Indigo unless the Pratt engines were replaced by the end of January. The warning followed several incidents of engines shutting down in-flight.In October Lufthansa AG subsidiary Swiss temporarily grounded its Airbus A220(1) fleet so the Pratt engines could be inspected after a spate of powerplant failures (the debris from one such incident was recovered from a French forest last week). Since then Canadian regulators ordered the same aircraft not to operate at full power above a specified altitude.About 70% of airlines and lessors surveyed by Citi Research said groundings caused by engine issues were a key concern. Some are looking to operate mixed fleets to lessen the risk of one engine type being grounded. While that’s prudent, it’s more expensive than using a single type of equipment.The risk for engine manufacturers is that reliability issues cost them market share. Earlier this year Air New Zealand switched an order for 787 jet engines to GE after problems with its Rolls-Royce kit. Indigo placed a $20 billion order with the GE/Safran engine joint venture rather buy from Pratt (Pratt claimed the decision was price-related).The problems haven’t affected all new technologies. Rolls-Royce’s XWB powerplant for the Airbus A350 has proven reliable so far. The core gearing innovation underpinning Pratt’s GTF also appears to work as planned; a relief because it cost about $10 billion to develop. There’s more at stake, though, than airline flight schedules and manufacturers’ pride and profitability. As with the car industry, the aerospace sector is gearing up for an epochal effort to curb carbon emissions. Aviation accounts for 2%-3% of greenhouse gas emissions but the sheer volume of plane deliveries in coming years will counteract engine efficiency gains. Aviation’s share could rise to between 10% and 25% by 2050, a Roland Berger study found. Unlike carmakers, the airlines lack viable technological alternatives. Biofuels have potential but fully electric large commercial aircraft are probably decades awayEngine manufacturers are working on still more efficient jet engine designs. Rolls-Royce claims its Ultrafan technology will deliver a 25% improvement in fuel burn compared to the first generation of Trents. Bringing these innovations to market quickly is essential from a planetary perspective but rushing development could prove counterproductive. “My sense is that public opinion in Europe at least is moving quicker than the technology,” says Rob Stallard at Vertical Research Partners.Cunningham is even less optimistic. “Gas turbines are running out of road at just the point where the political impetus is toward greater decarbonization,” he says. “Jet engines are unlikely to get a lot better from here.”(1) The plane was developed by Bombardier Inc and was known as the C-Series before Airbus acquired a majority stake.To contact the author of this story: Chris Bryant at firstname.lastname@example.orgTo contact the editor responsible for this story: James Boxell at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
The Zacks Analyst Blog Highlights: Alibaba, General Electric, Anthem, Progressive and Pharmaceuticals
Third-quarter EPS season is in the homestretch, with blue-chip Utilities, Financial Services, Consumer and Industrial companies all releasing reports. Through 11/1/2019, Refinitiv reported that 356 S&P 500 companies have now announced 3Q earnings, with 76% coming in above consensus, ahead of the past four-quarters average percentage of 74%. The better-than-expected results have improved the overall forecast for the quarter to a -0.8%, from -3.2% at the start of the reporting season. Our analysts are always on the lookout for companies that raise their outlooks during earnings season. Management’s ability to “raise guidance” can often be a catalyst to strong returns in the quarters ahead. Following are 12 BUY-rated companies in Argus coverage for which management has raised guidance during the current EPS reporting season.
Many investors are still learning about the various metrics that can be useful when analysing a stock. This article is...
(Bloomberg Opinion) -- In the bond market, it can sometimes feel as if the more things change, the more they stay the same.Consider the following two articles about the massive amount of triple-B rated corporate debt:“A $1 Trillion Powder Keg Threatens the Corporate Bond Market” by Bloomberg News. The takeaway: “A lot of these companies might be rated junk already if not for leniency from credit raters. To avoid tipping over the edge now, they will have to deliver on lofty promises to cut costs and pay down borrowings quickly, before the easy money ends.”“Bond Ratings Firms Go Easy on Some Heavily Indebted Companies” by the Wall Street Journal. The takeaway: “Amid an epic corporate borrowing spree, ratings firms have given leeway to other big borrowers. … The buildup has fueled one of the most divisive debates on Wall Street: Will higher debt loads cause big losses when the economy turns?”The first one is from October 2018 and the second from a couple of weeks ago. That alone isn’t what’s most interesting — financial-market themes tend to repeat themselves, after all. Rather, it’s the fact that market appetite for those bonds on the brink of junk couldn’t be any more different between then and now, even though it’s clear that fears about ratings inflation and a huge wave of downgrades haven’t gone away.Around this time last year, Scott Minerd, global chief investment officer at Guggenheim Partners, made headlines by tweeting that “the slide and collapse in investment grade credit has begun,” starting with General Electric Co. No one seemed to want to own bonds rated just a step or two above junk — the Bloomberg Barclays triple-B corporate-bond index trailed the broad market in 2018 for just the second time since the financial crisis. I was willing to be contrarian after his comments, writing that investors shouldn’t fear a doomsday that everyone seems to think is coming.Still, the rapid change in sentiment through the first 10 months of 2019 has been nothing short of astounding. While there were signs of the tide starting to turn earlier this year, triple-B bonds have now returned 14.4% through Oct. 30, better than any other rating category. If the gains hold through the end of the year, it would be the triple-B market’s strongest performance since 2009, when it bounced back from its worst annual loss on record amid the financial crisis. Investors have either made peace with the risk of mass downgrades when the credit cycle turns, or they’ve just decided to ignore it and reach for yield when the Federal Reserve is cutting interest rates. Neither seems to be sustainable.It’s not as if the Wall Street Journal’s recent article is an outlier — CreditSights said in an Oct. 30 report that about $70 billion of triple-B corporate debt is at risk of falling to junk within the next 12 months, including household names like Kraft Heinz Co., Macy’s Inc. and Ford Motor Co. It’s not a question of whether so-called fallen angels become more prevalent, according to the analysts, it’s “when and how fast.”As for the “debt diet” that was supposed to happen this year, which would make triple-B companies less leveraged? In the aggregate, it’s been exactly the opposite. Fitch Ratings, in an Oct. 31 report, noted that triple-B corporate issuance is on pace to reach a record in 2019 after accounting for almost two-thirds of the $515 billion in bonds sold through the first nine months of the year. Triple-B securities make up half of the $5.8 trillion investment-grade corporate bond market, Bloomberg Barclays data show.But perhaps the most telltale sign of just how little investors seem to mind the “ratings cliff” between investment- and speculative-grade is how they’re gobbling up double-B bonds just as voraciously as triple-Bs. In fact, on Oct. 28, the spread between the two dropped to 43 basis points, a new low, according to Bloomberg Barclays data. At the start of 2019, it was as high as 172 basis points. Even though triple-B corporate bonds are having their best year in a decade, double-B debt isn’t far behind. This trend isn’t going to end overnight. Investors poured $2.3 billion into investment-grade bond funds in the week through Oct. 30, and an additional $940 million into high-yield funds, according to Lipper data. The sub-2% yield on 10-year Treasuries is probably still causing sticker shock to some investors, given that until a few months ago it hadn’t breached that level since President Donald Trump’s November 2016 election. For those in Japan and Europe, buying U.S. corporate bonds rather than Treasuries is sometimes the only way to avoid negative currency-hedged yields. Global and structural forces keep investors slamming the buy button in credit markets.Eventually, though, something has to give, as it always does. For now, corporate-debt buyers are content to just avoid triple-C rated securities. That includes Guggenheim investors led by Minerd, who said in a note this week that “now is not the right time” to add the riskiest junk debt, given the downside potential of more than 20%.The reasoning makes sense — triple-C rated companies are the most prone to default in an economic downturn. But in such a slump, triple-B companies would be vulnerable to downgrades. If investors were so sure last year that rating cuts would be too much for the high-yield market to bear, why wouldn’t they also stay away from triple-B bonds at this point?There’s no obvious answer. It’s just a reminder that total returns aren’t everything. Even though triple-B securities are the belle of the ball in credit markets this year, nothing much has truly changed.To contact the author of this story: Brian Chappatta at firstname.lastname@example.orgTo contact the editor responsible for this story: Daniel Niemi at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
General Electric’s recent decision to freeze retirement benefits for 20,000 employees provides the latest unwelcome illustration of the problems confronting millions of US workers battling to secure a decent income in old age. It faces a funding shortfall of $22.4bn across its US and international pension funds.
Emerson's (EMR) fiscal Q4 earnings are likely to have gained from strong prospects in the Automation Solutions segment. Weak global discrete manufacturing market might have been a concern.
Investors pushed shares of GE up nearly 12% after better than expected third quarter results, but at least one analyst thinks that rally was unjustified.
Benchmarks closed in the green on Wednesday as the Federal Reserve cut rates for the third time this year, and Chairman Jerome Powell signaled no rate hikes until he witness a "really significant" rise in inflation.
The third quarter was tough for multinational conglomerate General Electric (GE). Between July 1 and September 30, GE stock lost 15% of its value.
(Bloomberg) -- U.S. stocks advanced to an all-time high after the Federal Reserve cut interest rates as expected and signaled it was unlikely to move in either direction any time soon as inflation remains muted. Treasuries extended gains and the dollar erased an advance. The S&P 500 swung between gains and losses after the Fed cut rates by a quarter point before turning sharply higher when Chairman Jerome Powell said rate hikes won’t occur as long as inflation remains persistently cool. That fueled a rally in Treasuries and sent the dollar lower. Earlier, risk assets were under pressure after hawks saw a change in the policy statement’s language -- removing “act as appropriate” -- as signaling officials will not make any further cuts this year.“Markets believe that, irrespective of easing trade issues, there is a gigantic pause on future rate increases unless and until inflation moves markedly higher,” said Jamie Cox, managing partner for Harris Financial Group. “The Federal Reserve just put a big stake in the ground on the future rate path.” Apple and Facebook report after the close.Equities had spent most of the day treading water as investors digested the latest batch of earnings and trade headlines. Shares fell to session lows when Chile canceled next month’s APEC meeting where the U.S. and China intended to sign a partial trade pact.Johnson & Johnson led gains in the Dow Jones Industrial Average. Yum Brands, C.H. Robinson and Molson Coors slumped after reporting results. General Electric jumped after raising its forecast while Mattel soared after a sales beat. Data showed the U.S. economy rose 1.9% in the third quarter and a report on private hiring showed solid gains, with both data sets topping estimates.“This quarter’s results suggest that recession fears may have been overblown, and the U.S. economy is simply going through another growth scare, akin to late 2015/early 2016,” said Michael Reynolds, investment strategy officer at Glenmede.Earnings also set the tone in Europe, where the Stoxx 600 added 0.1%. Total’ profit beat analyst estimates and cash flow held firm, Airbus cut its full-year delivery target and Volkswagen lowered its outlook for vehicle deliveries. Deutsche Bank saw earnings from trading debt securities and currencies drop 13%, Credit Suisse Group posted better-than-expected profit and Standard Chartered generated 19% more revenue in Europe and the Americas. PSA Group and Fiat Chrysler Automobiles rose after saying they’re in talks about a tie-up.Elsewhere, the pound strengthened after U.K. Prime Minister Boris Johnson won backing in Parliament for a Dec. 12 election. The euro was steady after data showed France’s economy grew more than expected in the third quarter, but economic confidence in the broader region extended a slide. Oil fluctuated and gold rose.Here are some key events coming up this week:Earnings include: Apple and Facebook on Wednesday; Mitsubishi Heavy on Thursday; Exxon Mobil and Macquarie Group on Friday.The Fed is expected to lower the main interest rate when policy makers decide on Wednesday.The Fed’s preferred inflation metric, the core PCE deflator, is due Thursday.The Bank of Japan sets policy on Thursday and Governor Haruhiko Kuroda will hold a news conference.Friday brings the monthly U.S. non-farm payrolls report.These are some of the main moves in markets:StocksThe S&P 500 Index rose 0.3% at 4 p.m. New York time.The Dow Jones Industrial Average added 0.4% and the Nasdaq 100 climbed 0.4%.The Stoxx Europe 600 Index rose 0.1%.The MSCI Asia Pacific Index declined 0.2%.The MSCI Emerging Market Index fell 0.2%.CurrenciesThe Bloomberg Dollar Spot Index fell 0.1%.The euro rose 0.2% to $1.1137.The Japanese yen added 0.1% to 108.79 per dollar.BondsThe yield on 10-year Treasuries lost five basis points to 1.78%.The two-year yield slipped two basis points to 1.62%.Germany’s 10-year yield was flat at -0.35%.CommoditiesGold futures increased 0.2% to $1,494.10 an ounce.West Texas Intermediate crude declined 1.4% to $54.77 a barrel.\--With assistance from Samuel Potter.To contact the reporters on this story: Vildana Hajric in New York at firstname.lastname@example.org;Sarah Ponczek in New York at email@example.comTo contact the editors responsible for this story: Jeremy Herron at firstname.lastname@example.org, Todd WhiteFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Exactly one year ago, Larry Culp delivered a sobering message to General Electric Co.’s long-suffering investors. As he slashed the dividend and restructured the power business to blunt a downturn, the newly minted boss made clear their pain wasn’t over.Today, he put forth a more encouraging prognosis, offering hints that a turnaround is finally taking hold at the once-dominant industrial giant. Just as important, he didn’t blindside investors with nasty surprises.Instead, Culp on Wednesday raised the cash-flow forecast for its core industrial businesses while reporting quarterly earnings that topped Wall Street’s expectations. Investors responded by sending the stock toward one of its biggest gains this year, brushing aside any lingering doubts for now.“There’s still a lot to do, it is a reset year,” the chief executive officer said in an interview. “But net-net, we’re pretty encouraged.”Culp came to GE with a gleaming resume as an industrial guru, having boosted sales and profits at manufacturer Danaher Corp. The first outsider to become CEO of GE, Culp faced a daunting task. GE’s decline has been among the most stark in recent corporate history.No-frills ApproachThe iconic manufacturer of jet engines and medical scanners has cycled through CEOs, struggled with dwindling cash flows and mounting debt, watched its share price shrivel and even got the boot from the Dow Jones Industrial Average.After that rocky debut last October, Culp has taken a deliberate and characteristically no-frills approach. He’s walked factory floors to identify inefficiencies and tackled outsized debt. Improvement is starting to show, he said, from operations to leverage to the reshaped portfolio.Cash, in particular, has been a concern for investors. During the quarter, GE’s industrial businesses generated $650 million in adjusted free cash flow, above analysts’ estimates. GE now expects the manufacturing operations to generate as much as $2 billion in free cash flow this year, a billion-dollar increase from the prior projection.The power-equipment unit has been a pain point for GE amid a global downturn in the market for gas turbines, and the business struggled with a 30% decline in third-quarter orders. Still, Culp said there’s reason for optimism, noting that its profit margins rose substantially. Fixing the ailing business has been a main priority since he took the top job.The shares jumped 10% to $9.98 at 1:15 p.m. in New York after an earlier gain of 14%, the biggest intraday since February. GE advanced 25% this year through Tuesday, narrowly outpacing an S&P 500 index of industrial stocks.GE is far from recovered -- the shares are still lower than when Culp took the helm -- and the company remains vulnerable to criticism. The stock plunged in August after financial investigator Harry Markopolos accused GE of accounting fraud. Markopolos, who worked with an unidentified short-seller to make the allegations, has largely retreated from the public eye in recent weeks and the shares had recovered even before Wednesday’s rally.Culp has pushed back against the claims, calling them “market manipulation, pure and simple.”‘Notably Better’Third-quarter adjusted earnings rose to 15 cents a share, GE said, topping the 12-cent average of analysts’ estimates compiled by Bloomberg. Sales in the manufacturing businesses rose 7% on an organic basis.“At the margin, most of the news is in line or notably better than expected,” said Nicholas Heymann, an analyst with William Blair & Co. “There’s not a lot to complain about.”Even the seemingly big negatives -- an $8.7 billion charge related to GE’s sale of a stake in Baker Hughes, a $1 billion charge due to difficulties in an insurance business, a cash headwind from the grounding of Boeing Co.’s 737 Max -- were shrugged off by investors. As analysts noted, GE had flagged the issues in advance and didn’t surprise shareholders with worse-than-expected results.Perhaps the surest sign that GE’s quarter hit the mark came from one of the company’s biggest critics, who found little to fault in the figures.“There is not much controversy here,” said Steve Tusa, a JPMorgan Chase & Co. analyst who recommends selling the shares. There were “some puts and takes but probably received as better than feared, and the stock should recoup some of its recent under-performance.”To contact the reporter on this story: Richard Clough in New York at email@example.comTo contact the editors responsible for this story: Brendan Case at firstname.lastname@example.org, Larry Reibstein, Tony RobinsonFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- General Electric Co.’s path to recovery is a long one, but the company no longer seems lost in the woods. In releasing its third-quarter results on Wednesday, GE also raised its guidance for 2019 free cash flow and now anticipates its industrial businesses could bring in as much as $2 billion this year. That’s a $4 billion swing from GE’s worst-case scenario in its initial March forecast. There’s a fine line between setting a low bar and sandbagging the numbers, but GE’s rosier outlook is supported by signs of stabilization in its beleaguered power unit and there being less of a drag than anticipated from the transition of a supply-chain financing program to a third party. The aviation business was also able to largely offset the negative impact of the continued grounding of Boeing Co.’s 737 Max. Those were key worry points that ended up not being as worrisome.It wasn’t a perfect quarter and there are some notable footnotes to that guidance increase. Still, a lack of nasty surprises and minimal signs to date of macroeconomic weakness in GE’s aviation and health-care businesses make this a victory for CEO Larry Culp. A flurry of deleveraging activities in the last two months had raised concerns that GE was trying to give itself some good news to talk about if the actual quarterly numbers were disappointments, particularly amid growing concerns that a manufacturing slowdown was deepening. That fear appears unfounded, at least as far as the last three months are concerned for GE’s businesses.Shares of GE rallied as much as 14% on the report, essentially erasing a slide since its last earnings update in July that in part reflected concerns over the impact of slumping interest rates. The decline in rates forced GE to reassess its expectations for the returns it will get on assets supporting the company’s long-term-care insurance business. While this contributed to a $1 billion pre-tax charge in the latest quarter as the company bolstered its GAAP reserves, it’s better than the “ somewhere south” of $1.5 billion adjustment – before other offsets – that Culp had flagged in September. And it’s certainly nowhere in the ballpark of what’s implied in the $29 billion reserve shortfall Bernie Madoff whistle-blower Harry Markopolos claimed existed.Operating profit for the power segment turned negative again after a few quarters of positive numbers. But margins did improve in that business – to negative 3.7% from negative 14.8% a year earlier – which GE says reflects better pricing discipline. The company now expects the cash burn at the power unit to be no worse than the $2.3 billion outflow last year (adjusted for a reorganization of that business), versus an initial prediction of a substantial year-over-year weakening. The health-care division saw a nice lift in profit margins and a 5% jump in sales, even as its imaging business struggled in China and some larger U.S> projects got pushed out. And aviation rebounded from an uncharacteristically weak second quarter. These are all positive data points that speak to Culp’s push for operational improvements.What hasn’t changed is that even at $2 billion, GE’s free cash flow will be very weak this year. The current forecast compares to $4.5 billion last year and $5.6 billion in 2017. While a stronger starting point in 2019 certainly helps, GE will have to overcome a number of challenges to get back to even those depressed levels. Already, GE will lose about $1 billion in free cash flow in 2020 from the sale of its biopharmaceutical business to Danaher Corp., per analysts’ estimates. Despite an improved performance in 2019, there’s no update at this time for GE’s expectation for the power unit to continue burning cash next year. And GE has to keep spending on restructuring. It again lowered its estimate for the cost of these cutbacks this year (which was a boon to its free-cash-flow outlook) in part because of the “timing” of politically fraught conversations in Europe over facilities and employees absorbed as part of its disastrous acquisition of Alstom SA’s power business. Keeping economic headwinds at bay will also be key. Meanwhile, GE will get lower contributions from Baker Hughes as it continues to wind down its stake; a divestiture in September pushed that holding below 50%, forcing the company to take an $8.7 billion pre-tax charge in the quarter.Culp is doing what he needs to do to stop the bleeding at GE. Now the conversation shifts to what kind of company this is going to look like when he’s done and how far this turnaround can go. To contact the author of this story: Brooke Sutherland at email@example.comTo contact the editor responsible for this story: Beth Williams at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
General Electric's (GE) third-quarter 2019 earnings rise year over year on improved margin profile. It raises the free cash flow (Industrial) view for 2019.
GE's industrial businesses generated more cash than expected in the latest quarter, and it looks to deliver even more than anticipated for the full year. That drove investors to bid up its shares Wednesday morning. The industrial conglomerate reported $650 million in adjusted quarterly cash flow and sees itself generating as much as $2 billion this year. Producing cash is important as General Electric tries to resuscitate its ailing power business while cutting debt. Helping produce that cash: rising profit and revenue at its healthcare and aviation businesses. Higher prices for aircraft parts lifted aviation revenue. That helped offset a $300 million hit GE took from the continuing grounding of Boeing's 737 MAX jetliner. GE supplies engines for that plane. General Electric is often seen as a bellwether for the U.S. economy. Under CEO Larry Culp's restructuring drive, GE managed to shrink its quarterly loss, and its adjusted earnings easily beat analysts' expectations. GE shares shot higher in early trading Wednesday, adding to their 25% gain this year.