BOSTON — General Electric executives used the “C” word 48 times Wednesday in their presentation to industry analysts on the industrial conglomerate’s first-quarter 2020 performance.
That would be “COVID-19,” and it has thrown the financially struggling company off its track to recovery.
Every aspect of General Electric’s diverse business has been affected and the company has placed an emphasis on preserving cash on hand to respond to the crisis, CEO H. Lawrence Culp and CFO Carolina Dybeck Happe said during the conference call.
“We entered the year with momentum,” Culp said. “However, as COVID-19 continue to spread globally, and I’m not going to sugar coat this, we got hit hard in some of our highest-margin parts of our best-performing businesses.”
Until very recently, GE Aviation was the star among the company’s component businesses, and the leading generator of revenue and profit. Now, 63% of passenger airliners equipped with GE/CFM jet engines are parked on tarmacs worldwide and airport takeoffs of planes have declined 75%.
GE Aviation has imposed layoffs and furloughs on significant percentage of its workforce to save money but its outlook remains murky: No one can forecast when air travel will be allowed to resume, and how enthusiastically or quickly either business or leisure travelers will return to the skies amid fears that will linger after the pandemic subsides, or the recession that may follow.
On top of the external forces battering it, GE faces an internal concern, Culp said: It has formed a task force to protect the health and safety of its roughly 200,000 employees in over 100 countries.
“Given the mission-critical work we do at GE, not everyone can stay home,” he said. “I’d like to acknowledge our employees out in the field and in our factories for their unwavering dedication as they continue to deliver for our customers, supporting essential services like hospitals, power generation, airlines and national defense.”
Where necessary and possible, employees are having their temperature taken, wearing masks and gloves, and keeping their distance from each other, Culp added.
As for the larger crisis facing the nation, world and company, he said the strategy boils down to three steps: embrace reality, redefine winning and execute the plan.
“Easier said than done,” Culp noted, adding that he’d draw on his experience as a CEO through the Great Recession and during the economic slowdown that followed the 9/11 attacks.
Through the COVID-19 crisis, General Electric will benefit greatly from the infusion of cash from its fortuitously timed $20 billion sale of BioPharma, which closed four weeks ago. GE also benefits from having made sweeping reductions in personnel, facilities and costs over the past two years, and from a dogged pursuit of lean efficiency.
Culp broke down some of the factors facing the individual businesses:
- GE Aviation is hit very hard and has an uncertain recovery window. But when air travel picks up again, and it will, GE is well-positioned for sales and service
- GE Healthcare has been on the front lines since the first outbreak in Wuhan, China, but is in the odd position of simultaneously seeing large increases and large decreases in its business. It’s going all out to make and service equipment for treatment of COVID-19 but demand for equipment for other medical purposes has fallen off sharply. That should rebound quickly after the pandemic due to pent-up demand when non-essential medical procedures are able to resume.
- GE Power and GE Renewables have been less directly affected by COVID-19 — the world still needs electricity — but travel restrictions have limited field work. GE Power cut 700 positions in the first quarter and plans further cost reductions.
General Electric reported adjusted earnings per share of 5 cents on Wednesday. Its stock price dropped 3.24% in heavier than average trading on a day when the S&P 500 as a whole was up 2.66%.
Culp warned that GE expects its financials to decline further in the second quarter.