Summary

• Since GE's Investor Call of 3/4/20 many disturbing events have occurred which will re-define the company's "new normal."
• It is imperative that GE revise their 2020 guidance as a result of an increasingly challenging environment.
• This article details 4 reasons that time is of the essence regarding this issue for the review and consideration of GE management authored by a concerned shareholder of the company.

Investment thesis

First off, I would like to acknowledge that the inherent value of quarterly guidance is subject to much debate. Readers of this article who are interested in context regarding this issue, may find The Misguided Practice of Earnings Guidance of value. I myself am not in favor of discontinuing guidance en masse but I strongly believe that there are times when extenuating circumstances dictate that revisions are necessary to properly reflect a company’s outlook going forward. Given the Hurricane Katrina-like headwinds enveloping the atmosphere, I believe that it is incumbent that GE's CEO Larry Culp revise GE’s (NYSE:GE) 2020 guidance. Let’s “drill down” to the 4 specific reasons which are foundational to my base case.

1) The coronavirus pandemic is a prevalent “clear and clear and present danger” that has turned the world “topsy- turvy.”

I’ve largely given up reading the WSJ and my other favorite newspapers, as well as listening and watching the news on radio and TV. I did so not because I’m Catholic (which I am) and it is the Lenten season (which it is) but rather to help preserve whatever scintilla of sanity I may have left. That said, my view is that it is virtually impossible for 99.44% of humankind to have any “line of sight” (a favorite GE phrase) on when the current crisis will abate, never mind be resolved. Given the spiraling magnitude of this pandemic, I believe both our economic and health future is in “God’s Hands.”

2) Boeing’s problems are going airborne, and will significantly affect GE’s 2020 cash flow

On 4/2/20 CNN Business reported that Boeing (NYSE: BA) recently announced that “it is offering employees buyouts as its CEO said it will take years for the airlines and aerospace industry to recover from the coronavirus crisis”. In addition, on 4/3/20 Forbes published an article that said “The plane-leasing firm Avolon has canceled orders for 75 737 MAXs worth $8 billion at list value, it said Friday, in what could be the beginning of a flood of deferrals and cancellations for Boeing BA and Airbus as the coronavirus pandemic decimates air travel”. BAs troubles will more than “trickle down” to GE, which to me is a signal that Larry Culp’s assumptions that the 737 would return to service in mid 2020 may be overly ambitious and even if it does, there will be likely be far less business for both BA and GE According to Gordon Haskett analyst John Inch the aviation unit generated 73% of GE’s operating profit in 2019 which underscores the gravity of GE’s cash flow issues going forward.

3) It is in Larry Culp’s best interests to revise 2020 guidance

In the 1 ½ years since he assumed the position of GE CEO, Larry Culp has received deserved high praise for his performance. He has navigated the company through the many financial and operational challenges it faced, and many (including me) consider his seminal achievement, was the 3/31/20 $21.4B sale of the Biopharma unit to Danaher Corporation (NYSE:DHR). But his failure to act in the midst of a tsunami of compelling evidence regarding the COVID 19 carnage would cause Culp reputational damage and impair GE going forward. Although it may strike some as heresy, I would not rule out the possibility of GE offering a voluntary buyout similar to the package offered by Boeing. Absent that, the CEO best option may very well be to furlough a sizable number of GE Aviation’s - oftentimes referred to as the company’s “crown jewel”- workforce.

4) It is in Carol Dybeck Happe’s best interest that Larry Culp revise 2020 guidance

On 11/27/19 a WSJ article headline stated that “GE’s New CFO Has an $8 Million Incentive to Stay” in reference to the appointment of Carol Dybeck Happe’s as GE’s new CFO and also said that her compensation package is strongly tied to producing results for investors according to a GE spokeswoman. Simply put, before she earns her golden handcuffs, it is critically important that Ms. Dybeck Happe “hits the ground running” or she will “hit the wall” as many Boston marathon competitors (including me) have experienced at “Heartbreak Hill” It is also worth noting that as 1 of GE’s “new kids on the block” the new CFO does not have any “skin in the game.” Ms. Dybeck Happe left last position in “shock departure” after far less than a year after she was hired so she has no GE “brand loyalty.” In my view, it will be interesting to see how she fares in this uniquely challenging role as GE CFO. Absent strong support from Larry Culp, she runs the risk of developing “Jamie Miller syndrome” of OPUD (overpromising and under delivering)- all the more reason that Larry Culp needs to give Ms. Dybeck at least a fighting chance to succeed by revising 2020 guidance.

Conclusion

GE’s “Detailed 2020 Outlook” issued on 3/4/20 stated that the further impact of COVID-19 “ beyond the first quarter is not incorporated” and that the company “ expects to generate approximately $0.10 in adjusted earnings per share*, as well as approximately negative $2 billion of GE Industrial free cash flow*, in the first quarter of 2020. GE’s Q1 earnings webcast is scheduled for 4/29/20 at which time GE CEO Larry Culp needs to present compelling and realistic guidance regarding the company's 2020 revenue, EPS and FCF metrics. Based on the 24/7 news coverage of the universal scourge of the coronavirus and the impending “Pearl Harbor moment” it is quite clear that we all “live in interesting times”..... and then some. Absent the senseless political rhetoric of who knew what and when, I believe that this health crisis may also have a devastating economic effect.GE CEO Larry Culp has a"heavy lift" as he sorts out these complicated factors and maintains his UPOD (underpromise and overdeliver) reputation. The intent of this article was to present several bona fide reasons that GE should revise their 2020 guidance as the outlook articulated by GE Aviation President David Joyce at the GE Investor Call on 3/4/20 is now essentially null and void in this the post-Q1 landscape. Mr. Culp needs to demonstrate John Wayne-like “true grit and align the interests of all of the company’s constituent stakeholders by taking bold steps starting with revising 2020 guidance. His ability to do so with skill and acumen will define his tenure as the company’s leader.

Adh mór Mr. Culp.