General Electric Co. (GE) stock managed to hold its ground in premarket trading Thursday despite a 2019 profit forecast that was below analyst estimates.
Shares of the Boston-based industrial standby initially were down in pre-market trading after the announcement but regained the lost ground and were up around 1.5% an hour before Thursday's opening bell. GE shares are down about 10% from their late February high, taking the steam out of what had been a run of more than 50% from its December lows.
GE is forecasting full-year 2019 earnings in the range of $0.50 to $0.60 per share, short of Street consensus of $0.70 per share, and CEO Larry Culp warned that industrial free cash flow burn could reach $2 billion before returning to the black in 2020. GE also said the impact of U.S. tariffs on China-made goods would be in the region of $300 million to $500 million.
The cash flow comments add anxiety to a stock already stung by Culp's comments at the JP Morgan Aviation, Transportation & Industrials conference that noted industrial free cash flow will swing from $4.5 billion in 2018 into negative territory this year as "market pressures impacting volume" as well as "project and execution challenges" affect its struggling power division.
"GE's challenges in 2019 are complex but clear. We are facing them head on as we execute on our strategic priorities to improve our financial position and strengthen our businesses," Culp said. "We have work to do in 2019, but we expect 2020 and 2021 performance to be significantly better with positive Industrial free cash flow as headwinds diminish and our operational improvements yield financial results."
The documents add that 2021 is expected to be the timeline to reach break-even in the struggling GE Capital unit.
"We will continue to take thoughtful actions to reduce downside risk and increase upside optionality to create long-term value for our shareholders," Culp added in comments ahead of the group's investor day in New York.
The CEO cited the dividend slash late last year as an indication of action GE is willing to take to stabilize its balance sheet and keep creditors off the company's back.
"Simply put, we have too much debt and we need to reduce it thoughtfully and soon," Culp said earlier this year. "Once we put our balance sheet in a healthier place, we'll be in a better position to play offense across all our businesses."
The company is targeting a credit rating "in the Single A range" as well as an Industrial leverage ratio of less than 2.5x net debt to EBITDA, and a GE Capital debt-to-equity ratio of less than 4x to achieve a more healthy balance sheet, according to the documents.
To hear Culp's first outlook call as he charts the long road to recovery at GE, click here for the webcast of the investor day, scheduled to kick off at 8:30 ET.
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