What's going on?
General Electric (GE) – once America’s biggest company – is in danger of being reduced to the ranks: it released 2019 financial forecasts on Thursday that fell short of investors’ expectations.
What does this mean?
Along with a disappointing profit prediction for 2019, GE expects its “free cash flow” to be on the small side too. This closely watched figure measures the amount of cash generated by GE’s core industrial business – which can be used for things like reinvesting in operations or paying down debt. Last year, GE’s free cash flow was $4.5 billion; this year, the best-case scenario is, ahem, $0 – with the company saying a likelier figure is somewhere between that and negative $2 billion.
Why should I care?
For markets: It’s always darkest before the dawn.
Despite the news, investors sent GE’s stock up 3%. The General recently hired a new captain who’s been busy restructuring parts of the business – and it looks like investors are on board. According to TipRanks data, investor “sentiment” is currently very positive on the company’s stock (tweet this), with only one analyst recommending selling it prior to Thursday. Having lost over two thirds of its value since mid-2016, perhaps GE’s changes are just what the medic ordered when it comes to pulling the company back from the brink.
The bigger picture: Kicked while it’s down.
GE’s new CEO is navigating troubled waters at the helm of the 127-year-old company. He’s been selling off parts of GE and using the cash to pay off some of its monstrous debt: $121 billion in December. With free cash flow shrinking, that debt is extra worrisome. And while disconnecting more bits of its sprawling business should help, it may be tough for the company to negotiate a good price when the whole world knows how much it needs the cash. Assuming all goes to plan, however, GE is predicting an improvement next year.