REUTERS: General Electric Co's chief executive surprised investors on Tuesday by forecasting a net cash outflow from the conglomerate's industrial business this year, a far more negative outlook than he offered previously, sending shares and bonds down.
"Industrial free cash flow will be (in) negative territory," CEO Larry Culp said in a webcast interview with JPMorgan analyst Stephen Tusa, a longtime GE bear.
"We lost US$2.7 billion last year in free cash in power," Culp added later in the interview, referring to expectations that GE's power business would take years to turn around. "I don't want to sugarcoat that in any way, shape or form."
"We'll see that be a greater negative number in this year as we work through the restructuring, as we work through the runoff liabilities there and just the localization of timing around projects," Culp said.
GE's shares swiftly dropped below US$10, which marked the biggest intraday percentage drop in more than three months, knocking US$4 billion off the company's market value. The shares were down 5.2 percent at US$9.85 on Tuesday afternoon after falling nearly 8 percent after Culp's remarks.
GE's bonds also declined, with GE Capital bonds the hardest hit. A US$2.25 billion issue at 4.5 percent coming due in March 2044 was down 1.65 percent.
Culp said the power business would face headwinds for "a couple of years," would not resolve problems with breaking power turbine blades for "a while" and promised to step up restructuring in the business and elsewhere. GE declined to provide restructuring cost estimates. The company is due to publish a financial forecast on March 14.
Culp's comments on Tuesday went beyond his warning in January that investors could expect industrial free cash flow to weaken in 2019, and the cash flow would increase "substantially" in 2020 and 2021. (https://reut.rs/2u05kcl)
Culp said on Tuesday that GE would continue to provide cash to its GE Capital unit for the foreseeable future, though probably not as much as the US$4 billion it provided last year.
GE Capital used to pay dividends to the parent company, but that stopped after losses mounted at GE's reinsurance business in the second half of 2017.
(Reporting by Rachit Vats and Ankit Ajmera in Bengaluru and Alwyn Scott and Katie Duguid in New York; Editing by Patrick Graham and Matthew Lewis)