General Electric (GE, $9.14) expects negative free cash flow in 2019

In a meeting with a J.P. Morgan Chase (JPM) analyst on Tuesday, the CEO of General Electric, Larry Culp, said that the company’s free cash flow – money left over after a company pays for operating expenses and capital spending – will be negative in 2019. After Culp’s comments, GE’s shares plunged nearly 4.7% to end the day at $9.89.

Free cash flow is often an indicator of a company's operating efficiency and as such is closely watched by investors.

The company generated ~$4.5 billion of free cash flow last year, but if it’s going negative from there, that means it is struggling with a few pressing issues. According to Culp, these are a combination of operational pressure, power, renewables, and then the non-operational pressures which he calls ‘policy.’ Culp further added that he is currently focussing on improving the company’s cash generation, as well as cutting costs.

However, prior to this meeting, the J.P. Morgan analyst had already warned investors not to get blind-sided by GE’s apparent gains, as the company’s prized aviation financing and leasing business are already in liquidation mode and has weakening earnings.

In reply, Culp assured that his team is fully committed to improve their disclosers and that investors need to remain patient through the restructuring process.

Despite this assurance, Culp has painted a realistic picture of where GE’s battered power business will struggle even more than last year resulting in a greater level of negative free cash flow. It may take another two years to turn around in this segment.

Culp also confirmed oxidation issues with the company’s line of gas-fired power turbines, called H-class turbines. But he added that these have been timely addressed by already upgrading 23 out of the 33 turbines.