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Aviation Growth And Low Spending Helps GE Beat Estimates Of Profit And Cash Flow


Aviation Growth And Low Spending Helps GE Beat Estimates Of Profit And Cash Flow
The profits and cash flow for the last three months of 2019 for General Electric Co beat analysts’ estimates with growth in its aviation business, the company announced. Despite this a moderate profit target was set by the company for 2020.
This was the fourth quarter in a row that GE has been able to do better than its own forecasts for earnings and cash flow. The continued better than expected results clearly indicates that the company’s strategy of a turnaround under its Chief Executive Officer Larry Culp was bearing fruit. The industrial conglomerate is a manufacturer of a large number of products including jet engines, power plants, medical imaging equipment, etc.
There was 6.9 per cent growth in the shares of the company following the quarterly earnings report.
The company forecast earnings of between 50 cents and 60 cents a share in 2020, GE said which would be lower than what was being anticipated by analysts at 66- cents a share. The company said that its industrial free cash flow for 2020 will be between $2 billion to $4 billion while analysts expect it to come in at about $3 billion.
According to data from Refinitiv, analysts had expected adjusted earnings of 18 cents a share but the company beat the estimates announcing adjusted earnings of 21 cents a share. Refinitiv data also put analysts’ estimates of free cash flow from industrial operations at $3.4 billion but GE beat the estimates with a $3.9 billion cash flow in the fourth quarter.
Analysts however noted that in the fourth quarter typically, the cash flow of GE increases because of a rush by the company to ship orders and book new orders by year-end.
RBC Capital Markets analyst Deane Dray said that even though Culp has pledged to spread cash flow throughout the year in a smooth manner, “the expectation was that this will still be an outsized cash flow quarter.”
The fourth quarter results saw a surge in the share price of GE as analysts noted that the resulted clearly indicated the area where improvement can be made by Culp. GE said that there was a 16 per cent fall in revenues in the power division of the company for the year with a 25 per cent drop in orders primarily because there was a drop in repeat purchase by bulk clients.  
In the year, there was an 8 per cent growth in the aviation business of GE against a growth of 3 per cent in orders which made the unit the largest revenue contributor for the group. Ironically, the global grounding of the 737 Max planes of Boeing and its subsequent production halt form earlier this month has helped the company because the plane engines that it makes for Boeing is sold at very low profit margins. Analysts said that the company managed to better profit margins by not selling engines to Boeing.
“Technically, cash is getting better, but much of the gains come from reducing earlier guidance on costs,” said John Inch, analyst at Gordon Haskett in New York.