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General Electric raises cash flow outlook as healthcare unit improves

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Via Financial Times

General Electric has again raised the outlook for its ability to generate cash as executives seek to turn round the industrial manufacturer’s difficulties. 

The company on Wednesday said that free cash flow from its industrial businesses would now be $0 to $2bn for the year. That is an improvement from July, when it estimated cash flows in a range between minus $1bn to positive $1bn, and a March estimate of cash outflow. 

GE is in what Larry Culp, chief executive, has called a “reset year”. The conglomerate, once a pillar of US industry, has struggled as renewable energy dents its power generation business and liabilities linger from GE Capital, its once-formidable financial services business. 

In the third quarter, GE reported a loss of $1.08 per share, compared with a loss of $2.62 per share a year earlier. Adjusted for items including discontinued operations, GE’s earnings per share totalled 15 cents, compared with 11 cents a year before. 

The company has sought to reduce debt built up over years of costly acquisitions and generous shareholder payouts. 

In February GE spun off its transportation business to rail equipment manufacturer Wabtec, raising $1.6bn in net cash. It has a pending deal to sell its Biopharma medical equipment business to Danaher for $21.4bn. 

It is in the process of selling down its stake in Baker Hughes, an oilfield services company. In September GE took its position to 36.8 per cent from just over half, raising $3bn. Income from Baker Hughes will no longer be reported as part of GE’s consolidated earnings, and the move led to a $8.7bn loss from discontinued operations. 

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GE’s core industrial businesses delivered an adjusted operating profit of $2.1bn, a 19 per cent improvement from the year before. They were driven by its aviation division, which makes engines and other aircraft parts, and its healthcare technology division. 

The power division, which sells equipment for coal, gas and nuclear generation and the electric grid, and renewable energy division, which makes wind turbines, both turned in losses. 

The aviation business has taken a hit with the grounding of Boeing’s 737 Max following a pair of fatal accidents. GE supplies jet engines for the aircraft. 

“We are raising our industrial free cash flow outlook again even with external headwinds from the 737 Max and tariffs, and we are holding our adjusted EPS outlook despite reduced income from moving Baker Hughes to discontinued operations,” Mr Culp said. 

Investors have been wary of risks lurking within GE’s portfolio of long-term care insurance liabilities retained after spinning off its Genworth Financial unit more than a decade ago. The company has said it would need to increase reserves against losses by about $15bn over seven years. 

In August GE came under attack by Harry Markopolos, a financial investigator, who claimed the company immediately needed far higher insurance reserves that it could not afford. The company has rebutted his assertions, and its shares have rebounded since they were released.

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