THE LOW HANGING FRUIT – GENERAL ELECTRIC

It’s said that with GE’s recent earnings report, the company’s conglomerate businesses are looking better.

Its cash burn has slowed and there are several other indications that the company is pointed in the right direction.  But, there’s that low-hanging fruit issue – the easy money has been made according to reports by analysts (ref. WSJ).  So far this year, however, the company has experienced a 40% stock climb.  And, it’s expected that its cash position will continue to improve.  With the recent results announcement, came the reminder that there was still a lot left to be accomplished and that both old challenges as well as new ones continue to present themselves.  GE now expects its industrial free cash flow to improve from a negative $1 billion earlier in the year to a positive $1 billion – a decided improvement.  For the second quarter, revenue fell 1%, with a net loss of $61 million.  However, some of the most troubled of GE’s businesses showed signs of improvement. Even though recent declines in the steam power systems has dragged down revenue in its power division, gas-power service and equipment orders were up 27%.  As well, orders in its renewable division have climbed, and the group’s revenue is beginning to catch up with that of the power division.  It’s possible, therefore, that there could come a time when those could even out the losses in the power division.  GE’s aviation group is the sole provider of the engines for the Boeing 737 MAX, but the group has held its own, now making engines for Boeing’s 777X jetliner.  CEO Larry Culp has consistently maintained that 2019 is a “reset” year and he recently sounded a cautious tone, saying that the company has little control over the problematic issues like the 737 MAX grounding, and mentioning that if that grounding persists the company’s cash flow would be impacted by “hundreds of millions of dollars” for this quarter and next.  But, for the most part, the company’s cash flow pressures have been alleviated – largely due to Culp’s deal making abilities.  There will also be an effect from the adjusting of costs and revenue, but those will be slower to affect overall revenue results.  So, the ball rests in GE’s court – their investors expect the company’s leadership to be able to produce positive free cash flow for several consecutive quarters, at which time it will be assumed that GE has weathered the worst of the storm that has befallen them in recent years.  Our best wishes for the continued progress.

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