GE burns more cash than expected amid drag from jet engine unit

Washington

GENERAL Electric (GE) burned more cash than analysts expected in the first quarter, crimping chief executive officer Larry Culp's turnaround push after recent signs of financial improvement.

Cash use by the industrial divisions totalled US$845 million in the first quarter, GE said in a statement on Tuesday as it reported financial results. That was worse than the burn of US$663.9 million predicted by Wall Street. Adjusted earnings of three US cents a share topped the 1.4-cent average of analyst estimates compiled by Bloomberg.

The results signal a sluggish start for GE's promised financial gains in 2021 after the coronavirus pandemic last year upended Mr Culp's drive to nurse the humbled giant back from an epic corporate collapse. GE, which surprised Wall Street with strong cash flow in the second half of 2020 and a robust outlook for further gains this year, is banking on Covid-19 vaccinations to spur air travel and rekindle demand for its jet engines and related services business.

"Our businesses are building momentum by accelerating our lean and decentralisation efforts," Mr Culp said in the statement, while acknowledging a "still difficult environment" for the aviation business.

GE's shares fell 2.4 per cent to US$13.25 ahead of regular trading in New York. GE climbed 26 per cent this year through Monday, while a Standard & Poor's index of US industrial companies advanced 14 per cent.

Cash generation is typically weak in the first quarter for GE, which also makes power equipment and medical scanners. Sales fell 12 per cent to US$17.1 billion, GE said. Analysts had expected US$17.6 billion.

The results cap a busy quarter in which GE announced the US$30 billion sale of its jet leasing business to Ireland's AerCap Holdings, a deal that will spawn a behemoth aircraft lessor. With the transaction, which is expected to close by early next year, GE is unloading the last major vestige of its troubled GE Capital financial services arm.

The results of what's left of GE Capital will be reported in the company's industrial balance sheet. GE has said it plans to use proceeds from the deal to repay another US$30 billion, bringing its total debt reduction since 2018 to US$70 billion.

Mr Culp last year slashed jobs and hoarded cash after the pandemic crushed global air travel and threatened his repair job at GE. The company's sprawling jet engine division continues to weigh on results as customers Boeing and Airbus contend with weak demand for new planes.

GE's engine maintenance business also took a hit, with US flight departures in mid-April down 30 per cent from pre-pandemic levels. The Boston-based company tracks departures as a gauge of demand for lucrative spare parts and services. GE has said it expects the market to begin recovering in the second half of this year. BLOOMBERG