GE's CEO warns of negative industrial cash flow in 2019, shares drop

General Electric Co's chief executive surprised investors on Tuesday by forecasting a net cash outflow from the conglomerate's industrial businesses this Year, a far more negative outlook than he offered previously, sending shares and bonds down.

"Industrial free cash flow will be (in) negative territory," compared with a positive 4.5 billion U.S. dollars last Year, CEO Larry Culp said in a webcast interview with JPMorgan analyst Stephen Tusa, a longtime GE bear.

The shock remark dealt a fresh blow to GE investors who have watched the Boston-based conglomerate slash its dividend as it took massive asset write-downs and huge insurance charges last Year. The stock is up nearly 36 percent this Year but is still worth less than a third of its value in mid-2016.

"I don't want to sugarcoat" the problems in GE's power business, Culp said, adding the unit likely will lose more cash in 2019 than the 2.7 billion U.S. dollars in free cash flow it lost in 2018.

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The cash forecast shows "demand for GE's (power) turbines is half what the company forecast two Years ago, and this is likely to persist into 2020," said Jim Corridore, an analyst at CFRA, who rates GE a "buy."

The stock swiftly fell below 10 U.S. dollars, the company's biggest intraday percentage drop in more than three months, which knocked more than four billion U.S. dollars off GE's market value.

Profits collapsed at GE's power unit in mid-2017 as sales fell and the company failed to deliver on promises to increase margins after a 10 billion U.S. dollars acquisition of Alstom of France.

Since then, GE has blamed the power unit's losses, which totaled 22 billion U.S. dollars last Year, on its own poor management and a shift toward new wind and solar power plants.

GE also has poured billions of dollars into its insurance business, which includes thousands of money-losing long-term care policies written more than a decade ago. Some experts said GE may have to spend billions more to cover claims.

Culp said on Tuesday that GE would continue to provide cash to its GE Capital unit for the foreseeable future, though probably not as much as the four billion U.S. dollars it provided last Year.

GE Capital used to pay dividends to the parent company, but that stopped after losses mounted at GE's reinsurance business in the second half of 2017.