By Rajesh Kumar Singh and Rachit Vats
CHICAGO (Reuters) – General Electric Co’s shares surged on Wednesday after Chief Executive Officer Larry Culp said the industrial conglomerate’s free cash flow would turn positive in the second half of this year.
The company’s shares, which had fallen 45% this year through Tuesday, closed Wednesday up nearly 11% to $6.75 on the heaviest volume in four months.
Culp’s comments at a Morgan Stanley Laguna Conference were more upbeat than the outlook GE provided in July, when it expected free cash flow to be better in the second half of the year.
Analysts expect GE third-quarter cash outflow to be about $656 million and cash inflow of about $1.17 billion in the fourth quarter, according to Refinitiv data.
The Boston-based industrial conglomerate reported cash outflow of $2.1 billion from industrial operations in the second quarter as the coronavirus pandemic pummeled demand in its aviation business.
Culp described the June quarter as the “toughest” quarter. While GE’s markets have stabilized in the current quarter, recovery remains sluggish, he said.
A recovery in the aviation business, usually GE’s most profitable and most cash-generative business segment, is critical for Culp, who is trying to turn around the company by improving free cash flow and cutting debt. Free cash flow represents the amount of cash a business has after paying all business-related expenses.
In a response to the pandemic-induced turmoil, GE is cutting $2 billion in costs. Culp said capital spending is also being slashed.
“We are really not waiting for the markets to come back and put the wind we had in our sails,” he said. “We know this is going to be a self-help story for a little bit longer.”
Culp said the company’s performance in the second half of the year will set the stage for a positive cash flow in 2021 as well.
Reporting by Rajesh Kumar Singh and Rachit Vats; Editing by Arun Koyyur and Nick Zieminski.