* Reports Q1 2019 results on Tuesday, April 30, before the market open
* Revenue Expectation: $26.98
* EPS Expectation: $0.09
There isn’t much to look forward to when General Electric Co. (NYSE:GE) announces its first-quarter earnings on Tuesday. The embattled industrial conglomerate has already lowered the bar dramatically by telling investors that the numbers for 2019 will look horrible.
According to the latest guidance, GE could burn as much as $2 billion in cash this year as the maker of lightbulbs, power turbines and aircraft engines goes through a deep restructuring exercise to survive in an environment where demand for its flagship products is weakening.
To preserve cash, the once-venerable giant almost eliminated its legendary rock-solid dividend last year, brought in Larry Culp as the new CEO, and started a massive asset sale program. But this is an old story for those who have been following the unravelling of GE over the past two years.
What’s worrying is that Culp has so far failed to win investors’ confidence and he is still not sure what’s needed to right the GE ship, which is clearly still firmly in the grip of a powerful storm. This bleak view is supported by GE’s share performance since October, when Culp took over as CEO—after the initial enthusiasm that pushed the shares more than 20% higher, they are now down about 15% since the date of his appointment, closing down a further 2.2% yesterday, at $9.12.
GE’s Cash Projections Are Optimistic
One of the biggest challenges for Culp is how to improve GE’s cash flows. The Q4 earnings included bigger-than-expected shortfalls at the power unit, which posted an $872 million operating loss and a $2.7 billion cash burn, while GE Capital saw a $177 million loss. The company is, however, signaling that its financial position will begin to improve from next year.
Promising significant improvement at GE’s manufacturing businesses over the next few years, Culp said in a statement in March:
“We have work to do in 2019, but 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.”
But that view is a bit too optimistic for the majority of analysts at the Street. Among them is JPMorgan’s Stephen Tusa, who has been the most accurate forecaster when it comes to GE.
Cutting his rating on GE stock to “underweight” and reducing his price target to $5 a share, Tusa wrote in a note to clients early this month:
“We believe many investors are underestimating the severity of the challenges and underlying risks at GE, while overestimating the value of small positives.”
For Tusa, GE’s cash projections aren’t realistic mainly because its financial services division will continue to hemorrhage cash and the giant isn’t factoring in the possibility of a recession, which will require more asset sales than the market is anticipating.
Bottom Line
GE’s restructuring remains very much a work-in-progress with very little signs of a turnaround taking hold. That means its stock will continue to trade close to rock-bottom levels unless we see a clear sign that the company’s cash flows are improving meaningfully and its ailing power business has seen the worst.