Entering text into the input field will update the search result below

General Electric: Q2 Cash Burn Could Trigger A Ratings Action

Jun. 01, 2020 9:46 AM ETGeneral Electric Company (GE)28 Comments
Shock Exchange profile picture
Shock Exchange


  • CEO Larry Culp divulged GE could have a Q2 cash burn of $3.5 billion to $4.5 billion.
  • GE could be hard-pressed to generate positive FCF for full-year 2020.
  • The pandemic has hurt revenue and operating income for Aviation, the company's remaining moat.
  • I estimate GE's proforma debt-to-EBITDA exceeds 6x. It could worsen amid cash burn.
  • A ratings action could be warranted. Sell GE.
  • Looking for a helping hand in the market? Members of Shocking The Street get exclusive ideas and guidance to navigate any climate. Get started today »

General Electric CEO Larry Culp. Source: Barron

General Electric CEO Larry Culp. Source: Barron's

The constant buying and selling of assets have made it difficult to forecast General Electric's (NYSE:GE) future earnings. Aviation, Power Systems, and Renewable Energy - or ("NewCo") - are considered core. The coronavirus has hurt commercial air travel and created headwinds for Aviation, the company's remaining moat. CEO Larry Culp recently divulged GE could have Q2 cash burn of $3.5 billion to $4.5 billion:

General Electric (GE.N) expects to burn more cash than expected in the second quarter, as the industrial conglomerate struggles with weakness in its aviation business due to the coronavirus crisis, Chief Executive Officer Larry Culp said on Thursday.

Shares of GE, which makes aircraft engines and power plants, fell as much as 3.6% to $7.03 after Culp also warned that the company's 2020 free cash flow will be negative.

GE's second-quarter free cash outflow is expected to be between $3.5 billion and $4.5 billion, he said at a conference. That was bigger than analysts' average estimate of an outflow of $2.5 billion, according to Refnitiv IBES data.

Over the past few years, investor sentiment has been highly-sensitive to cash flow. GE has constantly hived off assets, making its operating performance and valuation metrics rather opaque. On the other hand, cash flow and liquidity have been easier to track. This likely explains why they have received so much attention.

I have been a GE bear for quite some time. However, the company's historical free cash flow ("FCF") has not been as bad as I had expected.

GE Q1 2020 free cash flow. Source: Shock Exchange

For full-year 2017, 2018, and 2019, the company generated FCF of $5.0 billion, $2.1 billion, and $6.4 billion, respectively. During that time frame, GE Aviation has been a moat for the company. Military spending on aircraft has been robust, given President Trump's focus on maintaining a powerful military. Commercial air travel has also been robust, creating even

I also run the Shocking The Street investment service as part of the Seeking Alpha Marketplace. You will get access to exclusive ideas from Shocking The Street, and stay abreast of opportunities months before the market becomes aware of them. I am currently offering a two-week free trial period for subscribers to enjoy. Check out the service and find out first-hand why other subscribers appear to be two steps ahead of the market.

Pricing for Shocking The Street is $35 per month. Those who sign up for the yearly plan will enjoy a price of $280 per year - a 33% discount.

This article was written by

Shock Exchange profile picture
The Shock Exchange has a B.A. in economics and MBA from a top 10 business school. He has over 10 years of M&A / corporate finance experience. Currently head the New York Shock Exchange, financial literacy program based in Brooklyn, NY.His book, "Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead", predicted pain ahead for the U.S. economy and financial markets.In 2014 the law firm of Kirby, McInerney, LLP brought a class action lawsuit against Molycorp, Inc. for "materially misleading statements" in its financial statements. Kirby, McInerney used investigative journalism from the Shock Exchange to buttress its case. That's the discipline the Shock Exchange brings to every situation he covers for SA.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.