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GE Reports Lower Than Expected Drop In Earnings And Cash Burn

GE Reports Lower Than Expected Drop In Earnings And Cash Burn
General Electric (GE) investors were partly relieved after the US firm reported a better than expected drop in its earning and spent less cash than what analysts feared it would during the first quarter of the current year.
While Wall Street estimated that there would be a 44 per cent drop in the earnings of the company at 9 cents per share on estimated revenue shrinkage of 6 per cent to $26.92 billion, GE reported earnings at 14 cents a share against revenues of $27.13 billion. Analysts said that this was because of the US conglomerate continuing to divest its varied assets which included sale of a biopharma unit to Danaher (DHR) in February. The company reported a negative industrial free cash flow at $1.8 billion or $1.2 billion adjusted.
Cash expended for financing expenses of restructuring and the burning of cash by its core power unit forced the company to issue a warning in March about its free cash flow turning negative for the entire of 2019 by as much as $2 billion. For years, the free cash flow from GE’s industrial operations has been shrinking for years and reached $4.5 billion in 2018.
In terms of cash flow, Q1 marks the low point of the year for GE, said its CEO Larry Culp. Before the Q1 reporting by GE, Wall Street analysts debated that volume of cash burn by the company for the first quarter and estimates ranged from $2.4 billion by the Deutsche Bank to $3 billion by JPMorgan and at $4 billion made by RBC Capital Markets.
"While we understand why Bulls would set as low a bar as possible in order to claim victory with a 'beat' on the day of earnings, the reality is that, for the annual guidance to be credible, it needs to be better, given the normally backend-loaded profile of free cash flow," JPMorgan analyst Stephen Tusa wrote in a note to clients Monday.
Tusa stressed on his earlier estimates about the FCF being the key for valuation, and note3d that sales and EPS do not seem to carry as much value now as it used to do earlier. "We expect FCF to be the primary metric investors use to evaluate the upcoming quarterly print," he said.
After briefly upgrading shares, in early April, Tusa returned to a bearish view on GE stock as he is known to hold a bearish outlook for its stocks for a long time. He warned that many investors fail to make a proper estimate of the seriousness of the challenges and risks while stressing on a large disconnect between EPS and FCF.
Following the announcement of the results, there was a 5.8 per cent uptick in GE stocks.  IN December, the stocks of the company reached a nine-year low but have been rallying in recent weeks in the build up to its first quarter reporting.

Christopher J. Mitchell

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