GE warns on 2019 earnings as it battles 'complex but clear' challenges

Beleaguered industrial group General Electric has warned that earnings will fall in the current year, as it grapples with ‘complex’ challenges across the business, before its recovery starts to take hold in 2020.

The US group said adjusted earnings per share in 2019 were expected to come in between 50 and 60 cents a share, down from 2018’s 65 cents a share. Most analysts had been looking for flat to moderate growth in the current year.

Looking ahead, however, GE said industrial free cash flow was forecast to move back into positive territory in 2020, “with the pace of improvement accelerating in 2021”.

Larry Culp, who took over as chief executive in October, said: “GE’s challenges are complex but clear. We are facing them head on as we executive our strategic priorities to improve our financial position and strengthen our businesses.

“We have work to do in 2019 but we expect 2020 and 2021 performance to be significantly better, with positive industrial free cash flow, as headwinds diminish and our operational improvements yield financial results.”

Once the world’s biggest company, GE has endured a torrid period, as losses widened, debts soared to $115bn and its dividend was slashed to just 1 cent per share. It also fell out of the Dow Jones Industrial Average for the first time in 110 years as the stock plummeted.

Last year, it was forced to make a $23bn write down on the value of its core power equipment division, most of which related to assets bought from Alstom, the French company, in 2015.

Analysts at RBC Capital Markets said: “This is Mr Culp’s first time presenting guidance metrics since he was appointed chief executive, signifying that he has now reached the point where he can confidently commit to realistic targets and share his vision for the company.

“We are not overly concerned with the 2019 adjusted EPS guidance, given that Mr Culp has previously stated that 2019 would be a ‘reset year’.

“GE remains a battleground stock, but we believe that having Mr Culp draw the line in the sand with his targets and vision for the turnaround should bolster the bull case.”