GE slumps 6.8 per cent on Q1 virus warning

YEAR TARGETS HOLD

Shares of General Electric Co. plunged after the manufacturing giant predicted on Wednesday that the coronavirus would wipe out a substantial chunk of industrial free cash flow in the first quarter, but stuck to full-year financial targets the company set in January.

GE predicted the outbreak would erase US$300 million to US$500 million from industrial free cash flow and cause a hit of US$200 million to US$300 million to its first-quarter operating profit. GE set a forecast for first-quarter earnings of about 10 cents a share on Wednesday, including the virus impact.

The company expects to generate US$2 billion to US$4 billion of industrial free cash flow in 2020, chief executive Larry Culp said.

“We decidedly did not take a view and would not necessarily encourage any extrapolations from what we’ve said here in the first quarter simply because what we don’t know outweighs what we do know at this point,” Culp said on a conference call with analysts. “It’s a volatile, fluid situation, unpredictable in many respects.”

The Boston-based maker of jet engines, power plants and other industrial equipment employs thousands in China. It is considered vulnerable to economic weakness caused by the virus which has cooled the world’s second-largest economy and disrupted global supply chains.

The shares fell more than 15 per cent to US$6.01 a share by mid-afternoon in New York, dipping below their Great Recession nadir on a closing basis and putting GE on pace for its lowest price since 1992. GE has lost more than half of its market value in just over a month, wiping out strong gains in 2019. GE closed Wednesday at US$6.60, down 6.78 per cent.

Culp affirmed the adjusted profit target of 50 cents to 60 cents per share for 2020, and the industrial free cash flow target of between US$2 billion and US$4 billion. Analysts have estimated this year’s cash flow at a positive US$2.77 billion.

“It’s a very conservative outlook and accommodates a lot of headwinds ... basically it sails through everything,” William Blair analyst Nicholas Heymann said.

GE shares have lost about 16 per cent since the company’s fourth-quarter earnings report in January.

While the deadly pandemic has wreaked havoc on global markets, battered supply chains and weighed on bottom lines of most companies, GE is in a particularly precarious position as the manufacturer has yet to fully find its footing after a bruising slump in recent years. Culp has said there’s still work to be done to repair GE’s ailing energy operations and address a heavy debt load.

GE Aviation, the engine-making division that had been one of the company’s strongest assets amid the slump, faces a new challenge from the dramatic decline in air travel caused by the coronavirus, Gordon Haskett analyst John Inch said this week in a note.