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General Electric Co. made it abundantly clear when reporting first-quarter results, in which adjusted profit and free cash flow missed expectations, that the COVID-19 pandemic was to blame for much of the quarter’s weakness.
The negative effect of the pandemic on cash flow and operating income was up to about $1 billion more than GE had expected in early March.
And in the post-earnings conference call with analysts, in which “COVID” was uttered no less than 45 times by Chief Executive Larry Culp and new Chief Financial Officer Carolina Happe before the Q&A period, according to a FactSet transcript, Culp said he was looking to make some of the temporary actions taken to cut costs, such as job furloughs, more permanent. That position, he said, was based on expectations that the economic recovery would be gradual and slow.
GE’s stock GE, -0.66% slipped 0.7% in afternoon trading, bucking the rally in the broader stock market. The stock has gained 11% from the 28-year closing low of $6.11 on March 24, but was still down 49% from the near two-year closing high of $13.16 on Feb. 12.
Meanwhile, the Dow Jones Industrial Average DJIA, +2.16% , which ran up 622 points, or 2.6%, on Wednesday, has lost 16% since Feb. 12, when it closed at a record 29,551.42.
Don’t miss: GE’s stock falls to 28-year low after aviation unit cuts jobs as coronavirus weighs.
Before the opening bell, GE reported net income for the quarter to March 31 of $6.16 billion, or 70 cents a share, up from $3.55 billion, or 41 cents a share, in the year-ago period. Excluding nonrecurring items, adjusted earnings per share fell to 5 cents from 13 cents, missing the FactSet consensus of 8 cents.
Total revenue fell 8% to $20.52 billion, but above the FactSet consensus of $20.38 billion. Industrial free cash flow (FCF) was negative $2.21 billion, compared with guidance provided in March of about negative $2 billion.
GE said COVID-19 factors reduced free cash flow by about $1 billion, or as much as double the previously expected impact, and reduced its industrial business profit by about $800 million and GE Capital earnings by about $100 million. In the company’s business update on March 4, GE said it expected the coronavirus outbreak to reduce FCF by $300 million to $500 million lower operating income by $200 million to $300 million.
Also read: GE addresses triple threat of coronavirus, 737 MAX and Fed rate cuts, stock turns up.
The company withdrew its full-year outlook, saying it was unable to forecast results with reasonable accuracy given the evolving nature of the pandemic. In March, Culp said the 2020 FCF guidance range remained at a positive $2 billion to $4 billion.
“In the eight weeks since [the update], the world has fundamentally changed,” Culp said, according to the FactSet transcript. “And we all know that the COVID-19 pandemic evolved rapidly, hitting hard and hitting fast.”
When asked by an analyst whether the actions GE was taking to cut costs should be viewed short-term, and pandemic related, or structural in nature, Culp said he and Happe were working “to transition to a more permanent action” in the coming weeks.
A month ago, GE said the COVID-19-related temporary lack of work in its aviation business will impact about 50% of its U.S. maintenance, repair and overhaul employees for 90 days. On Wednesday, GE said the recovery in aviation will “multi-year” and be “gradual, slow.”
“We need to work through the changes on a more permanent basis that are required in light of the length of the recovery that we’re looking at,” Culp said on Wednesday’s analysts call.
In response to another question, about how much of the cost cuts will be structural, Culp indicated they were going to try to do more if possible.
He noted that restructuring charges to earnings aren’t required with job furloughs, because they aren’t permanent. “So part of what we’re trying to do is squeeze out some of the temporary but all the while if we can make more structural moves, we want to make sure we’ve got room to do that,” Culp said.
