Friday, September 22

GE Cautions Outlook Pressured by Supply-Chain Disruptions

General Electric Co.

GE -9.52%

warned that its business would be pressured by supply-chain disruptions this year after reporting strong quarterly growth for its jet-engine unit as commercial air traffic recovers from a pandemic-fueled decline.

The Boston conglomerate said Tuesday that its full-year results were on track to come in at the low end of predictions it issued in January. The manufacturer continues to face pressure from supply-chain disruptions and rising raw-material and freight costs, and impact from Russia’s invasion of Ukraine.

“As we continue to work through inflation and other evolving pressures, we’re currently trending toward the low end of the range,” Chief Executive Officer Larry Culp said.

For 2022, GE had projected high-single-digit revenue growth, earnings of $2.80 to $3.50 a share and free cash flow of $5.5 billion to $6.5 billion

GE shares slipped 4% in early Tuesday morning trading.

GE, which has slimmed down and streamlined its operations under Mr. Culp, plans to split into three separate public companies over the next two years with its healthcare division expected to spin off in early 2023.

The first-quarter results showed how the different parts of the conglomerate are faring in the current climate, with a rebound in air travel boosting one unit and a drop in demand for renewable energy dragging down another.

Revenue at the aviation division, which makes and services jet engines, rose 12% to $5.6 billion in the first quarter while segment profit rose to $908 million. GE said it expects demand in the division to remain strong. It is facing uncertainty in China from recent Covid-19 shutdowns and supply chain disruption but projects revenue growth of at least 20% for the year.

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In the healthcare division, which makes CT scanners, MRI machines and other hospital equipment, revenue rose 1% to $4.4 billion but segment profit dropped 23% to $538 million as supply chain shortages continue to hit the business.

Revenue at the power division, which makes and services turbines for gas power plants, fell 11% to $3.5 billion in the first quarter.

The renewables division, which makes wind turbines, posted a 12% sales drop and an operating loss of $434 million. GE said its US onshore wind business was hurt by policy uncertainty around tax credits and deferred customer investments, while the entire division was hurt by rising prices for materials and logistics.

Every day, millions of sailors, truck drivers, longshoremen, warehouse workers and delivery drivers keep mountains of goods moving into stores and homes to meet consumers’ increasing expectations of convenience. But this complex movement of goods underpinning the global economy is far more vulnerable than many imagined. Photo illustration: Adele Morgan

Overall, GE reported a first-quarter loss attributable to common shareholders of $1.1 billion, narrower than the year-ago loss of $2.9 billion. Excluding items, GE said its adjusted earnings were 24 cents a share, compared with Wall Street’s estimate of 18 cents a share. Revenue was $17.04 billion versus $17.07 billion a year ago. Analysts had projected $16.85 billion, according to FactSet.

GE said it contributed $2 billion to reserves in its defunct insurance business and said it expects further contributions of $3.6 billion through 2024. In 2018, the company had to commit $15 billion in additional reserves for long-term-care insurance policies after revamping its assumptions. for the portfolio.

The first quarter also included $200 million in charges mostly from impairments related to Russia’s invasion of Ukraine in its Aviation and Power divisions. GE also recorded $200 million in charges from a $2.2 billion portfolio of Polish mortgages.

The company reported free cash flow of negative $880 million for the first quarter.

The separation of GE’s major businesses will start with the healthcare division early next year. The power and renewables business will combine and form a separate company in early 2024. Existing GE shareholders will get new shares in the two companies after they are spun off.

Since taking over as the first outsider to run GE in 2018, Mr. Culp has sold off entire divisions, strengthened the balance sheet, streamlined manufacturing practices and decentralized the company’s management. Rather than a large corporate umbrella overseeing the divisions, Mr. Culp made them responsible for their own investments and costs.

In November, GE sold its jet-leasing business for more than $30 billion, allowing it to pay down more debt and fold the remainder of GE Capital, its once massive financial services business, into the company’s corporate operation.

Write to Thomas Gryta at [email protected]

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