By Thomas Gryta 

General Electric Co. swung to a first-quarter profit as the conglomerate reported stronger cash production than expected while leaving its full-year expectations unchanged.

GE's core industrial businesses burned through $1.2 billion of cash in the quarter; the company warned earlier this year that cash flow would drop as much as negative $2 billion this year from its core industrial operations.

It has called 2019 a "reset year" but has warned that the first quarter would be the low point of the results. New CEO Larry Culp is restructuring the company, prioritizing the struggling Power division as well as reducing the conglomerates massive debt load.

In the first quarter, GE reported a profit of $3.55 billion, compared with a year ago loss of $1.18 billion. Revenue fell 2% to $27.29 billion, as a sharp decline in the Power division, which makes turbines for power plants, offset gains in Aviation and other units.

"Our quarterly results were better than our expectations, largely driven by timing of certain items, which should balance out over the course of the year," Mr. Culp said in a statement. "This is one quarter in what will be a multiyear transformation."

In the quarter, GE completed the sale of its century-old locomotive business, struck a more than $20 billion deal to sell its biotechnology business and paid $1.5 billion to settle a long-running Justice Department probe into a legacy subprime mortgage lending business.

Investors and analysts see cash production as a strong measure of a company's performance and value. For GE, which has all but eliminated its dividend, the goal is returning to sustainable cash flow. But like many things at GE in recent years, the company's complexity makes it difficult to assess performance around a single financial metric.

GE expects to report positive cash flow in 2020, but a slide for its conference call shows the Power division isn't expected to produce cash until 2021.

Analysts had varying expectations for the company's performance in the quarter. RBC Capital analyst Deane Dray estimated negative cash flow of $4 billion and Gordon Haskett analyst John Inch projected cash burn of $2.5 billion. JPMorgan analyst Stephen Tusa estimated a negative $3 billion.

Adjusted quarterly earnings per share were 14 cents, ahead of an analyst projection of 9 cents a share, according to Refinitiv, while revenue was slightly above the consensus view of $27.05 billion.

GE shares rose about 8% to $10.52 in pre-market trading Tuesday. The stock has surged about 34% this year, but is down 30% in the last 12 months. Two years ago, GE shares traded at close to $30.

The Power business eked out a small profit even as revenue fell 22% from a year ago to $5.66 billion. GE has been restructuring the unit, which has struggled with slack demand for power plant equipment and excess inventories. GE said orders fell 14% in the latest quarter but rose in the gas side of the business.

The division, which had been GE's biggest in terms of revenue, has been at the center of GE's financial and operational woes. The company recorded a $22 billion accounting charge last year mostly related to its acquisition of Alstom SA's power business in 2015.

The Aviation unit, which make jet engines used by Boeing and Airbus, reported $1.66 billion in quarterly profit as revenue rose 12% to nearly $8 billion, making it GE's biggest and most profitable unit. The business shipped more than 400 LEAP engines in the quarter, more than twice as many as in the year-ago quarter.

Regarding the grounding of Boeing's 737 MAX airliners, GE said it is working closely with authorities but didn't provide details around any financial impact. It described the issue as "a new risk" to its 2019 outlook.

GE's CFM joint venture with Safran SA makes engines for the 737 MAX and Safran recently warned of cash-flow delays related to the plane's troubles.

The Healthcare unit had a quarterly profit of $781 million on flat revenue of $4.68 billion. GE is selling off the fast-growing biotech side of the operations, using the proceeds to help pay down debt. That will leave behind a business focused on selling hospital equipment such as MRI machines.

GE Capital ended the first quarter with $122 billion of assets. GE has been shrinking the once massive lending operation, which still includes a large jet leasing business and legacy insurance business. The unit had a profit of $135 million from continuing operations in the quarter and GE has said it will have to pump $4 billion into the unit this year.

Write to Thomas Gryta at thomas.gryta@wsj.com

 

(END) Dow Jones Newswires

April 30, 2019 08:18 ET (12:18 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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