GE Gets More of Its Ducks Lined Up

Industrials

Published: December 8, 2020 9:52 am

Before markets opened Tuesday morning, General Electric Co. (NYSE: GE) announced two actions that shave $4 billion more off the company’s liabilities. GE voluntarily contributed $2.5 billion to its pension fund, meeting its expected contributions for the next three years. The company also repaid $1.5 billion of an intercompany loan it had received from GE Capital.

Even including these two cash payments, CEO Lawrence Culp reiterated his expectation of positive free cash flow in the company’s Industrial segment for the fourth quarter and the next fiscal year: “With line of sight to at least $2.5 billion of Industrial free cash flow in the fourth quarter and positive free cash flow in 2021, these steps further reduce debt, de-risk our balance sheet, and put us on stronger financial footing to accelerate GE’s transformation.” Culp first announced the free cash flow estimate in October, when GE reported third-quarter results.

Including the actions taken Tuesday, GE said it will reduce debt by approximately $14.5 billion this year (including $9.6 billion in GE Industrial debt and $4.9 billion in GE Capital debt) and by approximately $28 billion since the beginning of 2019.

Net debt at the end of 2018 totaled $54.5 billion. By the end of the third quarter, net debt had dropped to $40.3 billion.

The announcement had little effect on early trading Tuesday morning. GE stock opened essentially flat at $10.89. That’s likely due to the fact that GE reaffirmed its free cash flow guidance. Meeting a previous commitment rarely moves the needle.

For the fourth quarter, analysts are estimating adjusted earnings of $0.09 per share on sales of $22 billion. Both figures are well below fourth-quarter 2019 earnings of $0.21 per share and $26.2 billion in revenue. For the full year, analysts are looking for $0.05 in earnings per share and revenue of $79.6 billion.

Shares traded up about 0.7% at $10.94 at last look. The stock’s 52-week range is $5.48 to $13.26, and the consensus price target is $9.71.