By Alwyn Scott and Rachit Vats
(Reuters) – General Electric Co (N:) plans to slash 737 MAX engine deliveries to Boeing Co (N:) roughly in half this year but set higher cash target for 2020 as it reported quarterly profit and cash flow that beat analysts’ estimates on Wednesday.
The results marked a fourth consecutive quarter that GE beat its earnings and cash flow forecasts, reinforcing a view that Chief Executive Officer Larry Culp was making progress in rescuing the ailing maker of jet engines, power plants, medical imaging equipment and other industrial goods.
Shares surged 9% to $12.79 in premarket trading.
GE said it expects to earn between 50 cents and 60 cents a share in 2020, less than the 66-cent forecast, on average, by analysts. It expects industrial free cash flow of $2 billion to $4 billion in 2020, bracketing the $3 billion analysts expect and up from its 2019 target of $0 to $2 billion.
Culp said on a conference call that GE will slow production of its LEAP 1-B engine for the 737 MAX, but will keep its line running to protect suppliers and prepare for increasing engine output in the second half of the year.
Boeing plans on the jet going back in service at airlines in the second half of 2020, and GE’s forecasts rest on that timing, Culp said. GE plans a deeper outlook discussion for March 4.
Meanwhile, GE is trying to tackle its problems by increasing “operational rigor” and lean manufacturing, Culp stressed on the call, suggesting simple measures such as calling on customers and collecting bills will improve performance.
GE’s power division has made progress in these areas, he said, but still needs work: It “will be better next year from a cash perspective but still not positive.”
GE’s adjusted earnings totaled 21 cents a share, topping analyst estimates of 18 cents, according to data from Refinitiv.
Free cash flow from industrial operations was $3.9 billion in the fourth quarter, beating analysts estimates of $3.4 billion, according to Refinitiv data.
GE’s cash flow typically surges in the fourth quarter as workers rush to ship units and book orders by year-end.
Culp has vowed to smooth cash more evenly across the year, but “the expectation was that this will still be an outsized cash flow quarter,” said RBC Capital Markets analyst Deane Dray.
In GE’s power division, revenue fell 16% in the year and orders fell 25%, mainly due to the “non-repeat” of large orders last year, GE said.
In aviation, GE’s largest unit by revenue, orders rose 3% and revenue rose 8% in the year. The unit was, ironically, helped by the MAX grounding since its engines earn little or no profit and not delivering them improves margins, analysts said.
GE reported $2.3 billion in organic industrial free cash flow for 2019, topping its 2019 target. More than $800 million of the cash came from spending only $1.2 billion on restructuring last year, after originally planning to spend more than $2 billion.
“Technically, cash is getting better, but much of the gains come from reducing earlier guidance on costs,” said John Inch, analyst at Gordon Haskett in New York.
GE’s total revenue fell about 1% to $26.24 billion.
Earnings from continuing operations attributable to GE shareholders rose to $663 million, or 7 cents a share, in the fourth quarter ended Dec. 31 from $509 million, or 6 cents, a year earlier, GE said.