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Coronavirus affects GE's outlook for first quarter

Coronavirus affects GE's outlook for first quarter

Aviation and Healthcare businesses hit most significantly
Coronavirus affects GE's outlook for first quarter
Photographer: File

BOSTON — General Electric on Wednesday offered investors a guarded outlook for 2020, predicting more of the gradual progress it has made in recent quarters but with a new variable — the COVID-19 virus — affecting its supply chain and revenue stream.

During a morning webcast, CEO H. Lawrence Culp Jr. said the COVID-19 outbreak has hit GE hardest in China, where it has 18,000 employees and generates 9 percent of its industrial revenue.

For the first quarter of 2020, the company projects a $200 million to $300 million income reduction attributable to the virus. 

He said GE’s facilities in China are now back online except for two in the Wuhan area, epicenter of the pandemic. They are operating at reduced capacity, though. Interruptions to the supply chain also are problematic, but getting better. 

“We’re working on that literally on a day-to-day basis, component by component, subsystem by subsystem,” Culp said.

He said GE’s top priority is the safety of its personnel. These considerations, coupled with the varying COVID-19 situations in the 170 countries where GE has customers, has caused a ripple effect.

The biggest impact has been on General Electric’s two most profitable businesses, Aviation and Healthcare. 

Aviation is affected because air travel in the Asia-Pacific region has plummeted on fears of contagion. Two-thirds of commercial flights worldwide are powered by GE engines, and fewer flying hours means airlines need to perform less maintenance and buy fewer replacement parts from GE.

Meanwhile, Culp said, “Our Healthcare team is in the middle of this.”

Asked by a financial analyst what impact COVID-19 would have on General Electric in the second quarter, Culp said he’d provide updates as they become available.

“What we shared financially was really what we know … we decidedly did not take a view and would not encourage any extrapolations from what we’ve said here in the first quarter simply because what we don’t know outweighs what we do know at this time. It’s a volatile, fluid situation, unpredictable in many ways.”

Meanwhile, in the larger picture, 2020 will be another rebuilding year as the conglomerate struggles to improve its financial picture and return to profitability.

Culp started the webcast with a tribute to the late Jack Welch, the CEO who engineered a meteoric 20-year rise in GE’s value and revenue.

“Jack was a giant in the business world and the heart and soul of GE for decades,” Culp said. “He changed the business landscape as we know it.”

One of the ways Welch did this was by relentlessly shedding underperforming executives and businesses. GE’s workforce in Schenectady dropped 70 percent during Welch’s 1981-2001 tenure, for example.

Welch’s determination remains part of the company culture — Culp used the word “ruthless” to describe efforts to get GE back on track. The company shrank from 283,000 employees to 205,000 in 2019 as sales of component businesses were finalized.

“Ruthlessly prioritizing a few key objectives helped us diligently address our most pressing issues and make substantial progress last year,” Culp said. “This will continue in 2020.

“While we know that the impact of this work is only starting to be visible to you, our investors, I’m confident that it will drive better results and a better culture over time.”

GE Power, formerly headquartered in Schenectady, has been a source of General Electric’s distress and a focus of its turnaround efforts. GE Power Portfolio CEO Russell Stokes said moving production work among the 38 countries where GE has manufacturing facilities would be part of the solution.

“We’re also rightsizing the business by transitioning our manufacturing footprint to lower-cost regions.”

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