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GE Money Flow Launches in 2019 – A Furious Fool



In 2018 the adjusted free cash flow of General Electric dropped by more than $ 1 billion a year to $ 4.5 billion. This was much lower than the initial leadership guide in the amount of $ 6 billion to $ 7 billion in free cash flow. Moreover, CEO Larry Calp hinted at GE's profits at the end of January that a free cash flow would deteriorate this year. On Thursday, GE provided more details about its forecast for 2019 and beyond. Fortunately, the 2019 cash flow forecast is not as bad as some were afraid, and GE expects a strong improvement over the next two years.

General Electric expects a negative free cash flow of up to $ 2 billion this year, despite rising revenues and a modest margin on an adjusted basis.

There are several reasons for this great discrepancy. Of course, the biggest contributor to GE's projected downturn in cash flows is the increase in spending on the restructuring of cash as the company is working to reduce its corporate overhead and energy business.

GE also expects the cash flow in the energy business ̵

1; which burned $ 2.7 billion in cash last year – to fall deeper into the negative territory in 2019. In addition to the restructuring costs, large flows of cash flows here exceed the costs of projects approved with excessively aggressive assumptions and outdated costs that are mainly related to acquisition Energy business Alstom

  GE gas turbine

] GE Power burned $ 2.7 billion last year – and 2019 will be even worse. Image Source: General Electric.

The third big reason for the GE's cash flow reduction in 2019 is that the renewable energy segment is expected to shift from production to around $ 500 million

The management expects a huge improvement in 2020 and 2021

coupled with the 2019 forecast, GE's management stated that the free cash flow should return to positive territory next year. Of course, some skeptics fear that these projections are over-optimistic. Let's see why GE executives are sure of the strong recovery of free cash flow.

First, the cost of restructuring the funds will begin to decline in 2020 and significantly decrease in 2021. Secondly, GE will see significant savings from these Office estimates that corporate overheads will drop by at least $ 500 million in 2019. Overhead unit costs can go down even further, while GE Power will also benefit from rationalizing its production and service. Thirdly, GE will work through most of its "non-operational" counter displays, such as legal calculations and loss-making projects, over the next two years.

In fact, GE believes that its segments of energy and renewable energy will bring a positive result of free cash flow in 2021. For comparison, they are on track to burn $ 4 billion or more on a combined basis this year.

The sale of assets will have a negative effect on cash flow over the next two years, but will reduce interest expense and organic growth

GE did not quantify where the free cash flow will end in 2021. However, it is likely that it will conveniently exceed the 2018 level of $ 4.5 billion – with a large amount of potential growth for years to come, when GE Power is recovering further, and GE Aviation continues to grow hot.

GE has a ton of growth

Investors cheered the GE forecast by sending GE shares by nearly 3% to $ 10.30 a quarter. However, it hit the lowest stock a few weeks ago, after GE announced a $ 21 billion deal to sell its business of biopharmaceuticals Danaher which would allow the company to rapidly reduce its debt. And this is almost 70% below the GE's long-term stockpile achieved less than three years ago

 GE Chart

General Electric stock performance. YCharts data.

If GE can achieve its 2021 goals and ensure further improvement beyond that, free cash flow may reach $ 1 per share by 2022 or 2023. This would potentially justify a GE share price of $ 20.

would still not have erased all investor losses over the past two years. Nevertheless, it is unprofitable expenses. After a 10-year bull market, there are not many stocks with good chances to double over the next three to four years. Thus, GE's shares could provide market gains for advancing investors.


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