Harsh Restructuring at GE, One Step Closer to Normalization

GE Cash Flow Turns Positive After Shedding Bad Assets... "Normalization Depends on the Aviation Industry"

(Source: SEBASTIEN SALOM-GOMIS / AGENCE FRANCE-PRESSE / GETTY IMAGES)

[Asia Economy Reporter Yujin Cho] General Electric (GE), which has undergone severe restructuring since the outbreak of the novel coronavirus disease (COVID-19), is approaching business normalization.

According to Bloomberg on the 26th (local time), GE announced in its earnings report that as of the end of the fourth quarter last year, cash flow saw a net inflow of $4.4 billion (approximately 4.85 trillion KRW), turning positive compared to the same period last year. This figure exceeded market expectations and continued the cash flow improvement trend following the previous quarter ($500 million). The Wall Street Journal (WSJ) evaluated that this was due to a reduction of workforce by one-quarter in the core aircraft engine manufacturing division and the beginning of revenue improvement effects from the downsizing of the power and renewable energy businesses.

GE posted $22 billion in sales and earnings of 8 cents per share in the fourth quarter last year. Although this slightly missed the market expectation of 9 cents per share in earnings, sales exceeded market forecasts.

GE CEO Larry Culp said, "The increase in new orders in the power and renewable energy businesses contributed to the improvement in cash flow." Culp, the first external CEO since the company's founding, took office in October 2018 and has been leading the restructuring efforts for four years. He self-assessed, "Last year was a better-than-expected year in the multi-year restructuring journey."

CEO Culp expressed optimism that GE's cash flow will improve to between $2.5 billion and $4.5 billion this year. The variable for normalization depends on the recovery timing of the aviation industry. Culp said, "The extent of cash flow improvement this year entirely depends on the recovery of the aviation division following the containment of COVID-19." He forecasted that the aviation division's sales, which plunged 35% in the fourth quarter last year, will recover in the second half of this year. He expressed confidence that "the aviation industry will return to pre-COVID-19 pandemic levels," but also noted, "There is significant uncertainty in predicting the exact timing of recovery."

Meanwhile, due to expectations of normalization such as cash flow improvement, debt reduction, and cost savings, GE's stock price has risen about 60% over the past six months.

This content was produced with the assistance of AI translation services.