Clean-Shaven GE Finally Heaves Into View

General Electric ended a bad year with some good news. The U.S. conglomerate hopes its industrial businesses, which span jet engines, power turbines, and healthcare equipment, can generate up to $4.5 billion of disposable cash next year. That is what GE used to make back in 2018, only now it has around 27,000 fewer workers and $30 billion less debt. Investors are lapping up what Chief Executive Larry Culp is selling, although they are also paying richly for it.

For all GE’s complexity, one simple gauge of progress is how much cash it gets from making industrial machinery and devices. In the fourth quarter of 2020, it made $4.4 billion, much better than the $2.5 billion that Culp projected back in October. The company has cut costs and staff and garnered orders from energy-sector customers. The gas power division, which competes with Mitsubishi and Siemens, stopped burning cash a year earlier than GE previously indicated.

A new free cash flow goal of $4.5 billion for the whole of next year is something of a stretch target. It mostly hinges on what happens to airlines who fly on GE’s jet engines. In the latest quarter, more than one-quarter of GE fleets were still grounded because of Covid-19, no improvement on the previous three months. The contribution from engines matters hugely to GE’s overall numbers: aviation generated $4.4 billion of free cash flow in 2019; in 2020 it generated none at all.

At least Culp is whittling GE down while he waits. Since 2019, he has sold the group’s biopharmaceutical division, reduced its stake in oil-services company Baker Hughes, and brought in a slew of outsiders for top jobs. He has also made worthy gestures, such as changing GE’s auditor and re-classifying some restructuring costs so they are no longer treated as one-off items. It’s hardly as dramatic as a full breakup, but that could come later.

And if incentives count, GE investors should be hopeful. Culp’s sign-on bonus was generously renegotiated in August as GE’s stock languished near historic lows. With the share price almost doubled since then, he is close to a theoretical payout of over $120 million. Rewarding CEOs for their share price is a bad habit. But if signs of improved cash flow are what drives GE’s stock, Culp is at least well-motivated to hit his new goal.

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