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General Electric shares soar as cash flow outlook improves

General Electric’s shares sprang higher after the beleaguered industrial manufacturer raised its outlook for generating cash and executives provided evidence of progress in a corporate turnround.

The onetime pillar of US manufacturing, whose decision to slash its dividend last year shocked many investors, said on Wednesday that free cash flow from industrial businesses would be zero to $ 2bn for the year.

That is an improvement from July, when it estimated cash flows in a range between minus $ 1bn and positive $ 1bn, and a March estimate of a cash outflow. In the third quarter, industrial cash inflows totalled $ 650m.

GE has struggled as renewable energy has dented its power business. It also has lingering liabilities from GE Capital, its once-formidable financial services business. Larry Culp, appointed chief executive 13 months ago, has described 2019 as a "reset year."

In the third quarter, the company reported a loss of $ 9.4bn, or $ 1.08 per share, compared with a loss of $ 22.8bn, or $ 2.62 per share, a year earlier. The loss was inflated by a $ 8.7bn hit associated with the sale of part of GE’s stake in Baker Hughes, an oilfield services company.

Adjusted for items including discontinued operations, GE’s earnings per share were 15 cents, compared with 11 cents a year before, and 3 cents higher than Wall Street expectations.

"The hard work continues. And from the inside, I'm seeing the improvements I wanted to see when we started on this path a year ago, improvements that will yield long-term results for all of GE stakeholders, ”Mr Culp told analysts.

Shares of GE rose 13.4 per cent to $ 10.28, the highest price since July.

The company has sought to reduce debt built up over years of costly acquisitions and generous shareholder payouts.

In February, it spun off its transportation business to rail equipment manufacturer Wabtec, raising $ 1.6bn in net cash. It has a pending deal to sell its Biopharma medical equipment business to Danaher, Mr Culp’s former employer, for $ 21.4bn.

A disposal of Baker Hughes shares in September lowered its stake to 36.8 per cent from just over half, leading it to separate the company’s accounts from consolidated earnings.

GE’s core industrial businesses delivered an adjusted operating profit of $ 2.1bn, a 19 per cent improvement from the year before. That was driven by its aviation division, which makes engines and other aircraft parts, and its healthcare technology division.

The power division – which sells equipment for coal, gas and nuclear generation and the electric grid – and the renewable energy division, which makes wind turbines, both turned in losses. GE wrote down $ 740m in goodwill related to a hydro power business acquired when it took over Alstom’s energy business in 2015.

The aviation business has taken a hit with the grounding of Boeing’s 737 Max following two fatal crashes. GE supplies jet engines for the aircraft. Jamie Miller, GE’s chief financial officer, said cash flow would suffer by about $ 1.4bn for the full year if the grounding continues.

Investors have been wary of risks lurking within GE’s portfolio of long-term care insurance liabilities, retained after spinning off its Genworth Financial unit more than a decade ago. The company previously said it would need to increase reserves against losses by about $ 15bn over seven years. On Wednesday, it took a $ 1bn charge for its insurance exposure, which it said was mainly due to lower interest rates.

In August, the company came under attack from Harry Markopolos, a financial investigator, who claimed it immediately needed much higher insurance reserves that it could not afford. GE has rebutted his assertions, and analysts did not ask questions about them on Wednesday’s call.

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