GE says it needs time for power-plant unit to recover

By Alwyn Scott
FILE PHOTO: The logo of U.S. conglomerate General Electric is pictured at the company's site of its energy branch in Belfort, France, February 5, 2019. REUTERS/Vincent Kessler/File Photo

By Alwyn Scott

NEW YORK (Reuters) - General Electric Co tamped down enthusiasm about a quick recovery in its power-plant unit on Wednesday, and an analyst said the company was not "telling the whole story" about purported market-share gains at its ailing power unit.

GE's stock rallied on Tuesday after Reuters reported it had booked six orders for "advanced class" turbines in the first quarter, topping rivals Mitsubishi Hitachi Power Systems and Siemens AG, according to sources familiar with the closely watched McCoy Power Report.

On Wednesday, GE said its power unit will need at least three years to halt its cash hemorrhage and restore its prior cash flow to double-digit cash margins. GE has said it expects to lose up to $2 billion in cash this year, mostly due to the power unit.

"Power was a very significant negative cash flow generator last year. We expect it to be also significantly negative this year," GE Chief Financial Officer Jamie Miller said at an investor conference hosted by Goldman Sachs.

GE shares closed down 0.6% at $10.26 on Wednesday.

Some investors had seen the orders report as signaling a nascent turnaround at the power unit, which lost a staggering $22.8 billion last year, mainly due to a large goodwill writedown.

But others saw GE losing ground to Mitsubishi Hitachi Power Systems (MHPS) and Siemens. GE "appears to be stopping short of telling the whole story," JPMorgan analyst Steve Tusa wrote in a note on Wednesday.

The McCoy tally counted three orders GE already booked last year, Tusa noted. Excluding those, GE booked just three advanced class orders in the quarter, including one from GE Capital, its own finance arm, Tusa noted. MHPS booked five orders and Siemens booked four, according to McCoy.

A McCoy tally of orders by gigawatts also showed erosion in GE's market share, Tusa said.

"GE's 4.5 gigawatt order number (and 40.4% market share) has generated a buzz across a Street consensus hungry for positive data points," Tusa wrote, noting GE has historically commanded 50% market share.

"A closer look shows externally sold utility-grade heavy duty gas turbine orders of about 1 gigawatt, well below both Siemens and Mitsubishi (about 2.5+ gigawatts each) and far from a signal of a change in trend or upside."

GE declined to comment on the JPMorgan report, and said "the Power turnaround remains in the early stages."

Miller said power will take two to three years to "work through" lingering pension costs, unprofitable contracts and liabilities from its 2015 acquisition of Alstom, she said. GE's forecasts do not include an economic downturn, in part because of long purchase cycles and large order backlogs on GE products, she added.

Miller said GE had expected some power-plant orders that it booked in the first quarter to be spread more throughout the year, suggesting the relatively strong quarter did not signal a turnaround in the ailing unit. Chief Executive Larry Culp warned earlier this month not to read the first quarter result as a trend.

GE is trying to shift the power business from "being really managed on a quarterly basis down into this monthly, weekly, daily management," she added.

(Graphic: GE's power business - https://tmsnrt.rs/2LyarvN)


(Reporting by Alwyn Scott; Editing by Phil Berlowitz and Alistair Bell)