General Electric drops sharply after CEO says it will keep burning cash

General ElectricMarkets Insider

  • General Electric CEO Lawrence Culp said Tuesday that he sees the company having negative industrial free cash flow this year due to its underperforming power unit.
  • GE shares were under pressure in 2018, losing more than half their value.
  • To reorganize its business, GE has sped up efforts to reduce debt and raise cash by selling assets.
  • GE Capital sold off $8 billion of assets in the fourth quarter and brought its debt load down by $21 billion, according to the company's fourth-quarter earnings release.
  • Watch General Electric trade live.

General Electric dropped more than 7% Tuesday afternoon following comments from CEO Larry Culp, which said he sees the company having a negative industrial free cash flow this year.

GE's cash flow will be in "negative territory," Culp said at a JPMorgan conference, adding that the company is embracing the reality that its power unit has been slow to adjust cost structure during its slump.

"This is a multi-year turnaround" in the power unit, he said.

GE shares were under pressure in 2018, losing more than half of their value as its power business struggled, price-cost pressures were compounded by the US-China trade war, and its LEAP engine suffered through behind-schedule deliveries.

To reorganize its business, General Electric announced a massive reorganization in June, saying it would reduce its debt by $25 billion in an effort to shore up its balance sheet. In October, GE replaced John Flannery with Larry Culp as GE's CEO. Under the leadership of Culp, GE has been speeding up efforts to reduce debt and raise cash by selling assets.

In November, GE announced it would expedite efforts to sell a $4 billion stake in the oil-field-services provider Baker Hughes. Additionally, its finance arm, GE Capital, sold a $1.5 billion healthcare-equipment finance portfolio to the US lender TIAA Bank.

And in December, General Electric said its digital unit would sell a majority stake in ServiceMax, a software provider, to the technology-focused private-equity firm Silver Lake.

Entering January, GE announced it revised the merger agreement between rail-transport company Wabtec and its business unit GE Transportation. Under the new agreement, GE will receive approximately $2.9 billion of cash but gives more equity to Wabtec.

With the help of these deals, GE Capital sold off $8 billion of assets in the fourth quarter and brought its debt load down by $21 billion, according to the company's earnings release.

Shares have gained 46% since their hitting a low of $6.66 on December 11.

This story is developing. Check back for updates.

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