General Electric (GE) Cash Goal Delayed In The Wake On Supply Chain Issues - According To CEO

Summary:

• GE is on pace to reach the low end of its projection due to "external pressures" like inflation.
• 27% increase in aerospace sales.

General Electric (GE) Q3 Earnings

The industrial group's cash flow rebounded in the second quarter thanks to GE's aerospace business, but the company issued a warning that its working capital would be put under strain as it protected its clients from the full effects of supply chain disruptions for the remainder of the year.

After GE separated its healthcare and energy businesses, Larry Culp, the company's chief executive, said the group was adhering to its forecast that full-year adjusted profits per share would range between $2.80 to $3.50 per share.

With the exception of cash, where delayed renewable energy orders and the anticipated losses to working capital would "push out," or postpone, around $1 billion in free cash flow to a later date, GE was on pace to reach the low end of its projection due to "external pressures" like inflation.

Before Tuesday's release, analysts' consensus projections for full-year earnings had already decreased to $2.80 per share from $3.20 three months prior when GE issued a warning about the effects of lockdowns in China and the war in Ukraine.

A 27% increase in aerospace sales drove a 5% increase in GE's top line, and adjusted revenues of $17.9 billion exceeded analysts' forecasts of $17.6 billion. As a result of supply chain delays, services revenues in the aerospace industry increased by 47% while commercial engine deliveries decreased.

According to GE, its strategy to divide into three publicly traded firms by 2024 with a focus on healthcare, energy, and aviation is still on track. As it advanced toward the three-way split, it claimed on Tuesday that it incurred "separation costs" of roughly $200 million in the second quarter.

Culp said he was still optimistic that the plan will increase GE's worth in the long term when he made his remarks the same day that 3M revealed intentions to separate its own healthcare division.

This month, GE made the following announcements: its healthcare division would be spun off early next year under the name GE HealthCare; its energy division would be rebranded as GE Vernova when it goes public in 2024; and Culp would oversee the remaining aviation division, which will be known as GE Aerospace.

According to GE, the effects of inflation pressures would result in $3 billion in healthcare earnings for the entire year. It further stated that it no longer anticipated a "step up" in earnings at its renewable energy company in the second half of the year, blaming "paralysis in Washington" for a failure to meet expectations for the onshore wind turbine market.