General Electric Co (GE.N) said on Wednesday the coronavirus pandemic dealt a $1 billion blow to cash flow at its industrial business in the first quarter, while total revenue fell almost 8% and the company warned the damage would worsen in the next three months.
Among many changes in response to the novel coronavirus, the Boston-based conglomerate said it had cut 700 workers and 1,300 contractors at its power division, was bracing for repossession of some aircraft by its GECAS leasing unit and was cutting capital spending by 25% this year.
Chief Executive Larry Culp declined to be drawn in on when cash flow might recover, and said some of the $2 billion in cost cutting the company was undertaking to deal with the economic effect of the coronavirus could be permanent.
“We’ve been hit hard and fast … in some of our most important, highest-margin businesses, be it aviation, and services, particularly, gas power services,” Culp said on a conference call. “We think that that gets worse before it gets better, particularly here in the second quarter.”
The one comparative bright spot was GE’s healthcare business, where demand for coronavirus-related products rose 1.5 to 2 fold, he said. This was partly offset by declining demand for other products. The division, which recently sold its biopharma unit, generated $896 million in quarterly profit.
Some analysts saw little that was unexpected in the results. While aviation profit margins fell more than was predicted, GE’s forecast that the unit will see a slow recovery “should not surprise investors,” Barclays analyst Julian Mitchell wrote.
Others said the results were disappointing. “Considering that GE had previously established a pattern of ‘beat and raise,’ we anticipated a result above 10 cents and a better free cash flow print,” said John Inch, analyst at Gordon Haskett.
GE’s shares were down 1.6% at $6.69 in afternoon trading.
GE earlier this month pulled its 2020 forecast, citing uncertainties created by the coronavirus outbreak. But it had backed its first-quarter industrial free cash flow expectation of near negative $2 billion.
Free cash flow from industrial operations was negative $2.2 billion in the first quarter, missing analysts’ estimates of negative $2.02 billion, according to Refinitiv data.
GE reported adjusted earnings of 5 cents per share, below the average estimate of 8 cents, according to Refinitiv.
Fallout from the pandemic caused revenue to fall 13% in both the aviation and power divisions. Profit in aviation fell 39% to $1 billion, while the power unit lost $129 million, GE said.
Revenue at GE’s gas power business fell by $426 million on an organic, or comparable basis from a year ago, more than the $387 million decline in such revenue in the aviation unit.
GE said about 20% of planned maintenance work on power plants had been deferred until later in the year, a factor that weighed on revenue and profit. Many U.S. utilities are deferring non-essential work because of health and safety restrictions.
GE said it planned to cut costs by $2 billion and take other steps to save $3 billion in cash in response to the pandemic, such as reducing capital spending or adjusting working capital.
The company had already announced this month plans to furlough half of its U.S. aviation component manufacturing and jet-engine assembly workers, without specifying how many. That move followed GE’s decision to lay off 10% of its 52,000-member aviation workforce in late March.
GE has also said the slowdown in aircraft repairs was affecting half of its maintenance workforce but has not provided numbers.