Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 
OFFON

4-Traders Homepage  >  Equities  >  Nyse  >  General Electric Company    GE

GENERAL ELECTRIC COMPANY (GE)
Mes dernières consult.
Most popular
  Report  
SummaryQuotesChartsNewsAnalysisCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsofficial PublicationsSector newsTweets

General Electric : Murky GE Accounting Clouds Cash Flow

share with twitter share with LinkedIn share with facebook
share via e-mail
0
11/10/2017 | 07:11pm CEST
By Michael Rapoport 

No matter what happens with General Electric Co.'s dividend, investors will still have to grapple with the fact it is nearly impossible to tell how much of its earnings are backed by cash.

Until investors can figure that out, a pall could hang over the battered stock and questions linger about the dividend, analysts said. "I can't really build a quarterly cash flow for these guys that has any credibility," said Scott Davis, an analyst with Melius Research.

Mr. Davis recently blasted GE in a research note as "a company in disarray." In an interview, he compared GE's earnings releases to "an IQ test -- they give you 10,000 numbers and you have to figure out which 10 matter."

In a statement, GE said, "Our goal is consistency and transparency with data that our shareowners can digest. We are looking at how we can report in a cleaner way, including a simpler presentation."

On Monday, GE executives led by CEO John Flannery plan to unveil a major update to its corporate strategy, which is expected to address the fate of the dividend, plans for asset sales and attempts to simplify the company's accounting.

The latter is a sticking point for investors and is tied to questions about the company's ability to convert earnings into cash.

The earnings-cash flow relationship has come to the fore since GE last month slashed guidance for the rest of the year for both measures.

"It's kind of opaque," said Brad Ginesin of hedge fund Polar Capital LP, which owns GE shares. "There's a certain leap of faith you take."

Ideally, a company's earnings should be fully backed by cash, to demonstrate that earnings are high quality and that there is money to do things like pay dividends to shareholders. But GE's accounting has so many moving parts -- different ways of measuring its performance, corporate changes and special items as well as areas without a lot of disclosure -- that analysts say they have trouble determining cash flow.

"When you're disposing of a lot of businesses as they are, it's difficult to separate out what assets are here, what assets are gone, and their effects on cash flow," said Charles Mulford, an accounting professor at the Georgia Institute of Technology.

Even before last month's change to guidance, analysts had been concerned about a divergence between earnings and cash flow. In May, the company changed its methodology for calculating the rate at which its operating earnings convert into free cash flow, in a way that made it look better. Under the new method, the conversion rate was 91% for 2016, versus 76% under the old.

The October outlook cut exacerbated fears. GE reduced its earnings target by about a third but its cash-flow target by close to half. That seemingly leaves the company needing a hefty fourth-quarter slug of cash, far exceeding newly booked earnings, to meet its target.

"The number looks extraordinarily challenging, and it's a little unclear how they're measuring the number," said Jeffrey Sprague, an analyst with Vertical Research Partners.

How challenging? GE spent $6.4 billion on dividends to shareholders in the first nine months of this year, nearly double the amount of cash it generated from operations, as calculated under standard accounting rules. And that doesn't even take into account the company's billions of dollars in capital spending.

Even under GE's preferred measures of earnings and cash flow, there was a shortfall. In the year's first nine months, GE reported $6.8 billion in industrial operating earnings with some GE Capital businesses added in, compared with only $1.6 billion of adjusted industrial operating cash flow.

To hit the sharply reduced 2017 financial targets GE issued last month, that trend would have to reverse itself in the fourth quarter. Calculations by The Wall Street Journal suggest that for GE to meet its earnings outlook for the year, it would have to produce about $2.3 billion to $2.8 billion in adjusted fourth-quarter earnings. To hit reduced industrial operating cash-flow targets it would have to generate an additional $5.4 billion.

GE's cash flow does historically tend to be weighted toward the fourth quarter -- the company's customers tend to spend their capital budgets toward the end of the year. And cash does often come into a company at a time different from when the corresponding earnings are booked -- that is partly why cash flow is reported separately in the first place.

Part of the reason for the earnings-cash flow disconnect, GE indicated during its third-quarter conference call, is a buildup of inventory in its power-generation segment, which performed worse than expected. The increased inventory means GE has committed capital to build equipment that it hasn't yet been able to reap cash flow from.

GE has also acknowledged part of the reason its cash-flow outlook got slashed so much relates to its growing portfolio of contract assets -- revenue the company books on long-term service and equipment contracts before it has the cash in hand.

GE has assured analysts the company will ultimately realize all the cash related to those contract assets. But "we need to get some comfort and confidence that that is going to be the case," Vertical Research's Mr. Sprague said.

Write to Michael Rapoport at [email protected]

share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news on GENERAL ELECTRIC COMPANY
07/16WELL PLAYED : For Researcher Marie-Agathe Charpagne, Music And Metals Go Hand In..
PU
07/16GENERAL ELECTRIC : GE Aviation enters Farnborough Airshow with record backlog an..
AQ
07/16THE DEVIL IS IN THE DETAILS : So, You 3D-Printed A Part For A Jet Engine Part. N..
PU
07/16GE : and Microsoft Enter into their Largest Partnership to Date, Accelerating In..
BU
07/16OUT OF THIS WORLD : GE Aviation Engineer Ted Ingling Started Out As Car Mechanic..
PU
07/16GE Aviation Arm Could Flex More Deal-Making Muscle -- Update
DJ
07/16GENERAL ELECTRIC : GECAS Orderbook to Supply Hongtu Airlines with Four A320neo&r..
PU
07/16GE Aviation CEO says changes at GE no constraint for his business
RE
07/16GENERAL ELECTRIC : What World Cup? What Wimbledon? Aviation’s Own Grand Sl..
PU
07/16GENERAL ELECTRIC : GE Aviation Boss Expects to Book Over $15 Billion in Farnboro..
DJ
More news
News from SeekingAlpha
07/16Tariffs should not 'materially alter' outlook for best industrials, analyst s.. 
07/16BOEING : The 'Business Case' Delaying The 797 
07/16GE 'wrestling' with what to do on potential Boeing mid-range engines 
07/16DIVIDEND GROWTH 50 : Income Up Nearly 10%, Led By Kinder Morgan (Seriously!) 
07/16Taking Flight At Farnborough; Trump To Meet With Putin (Wall Street Breakfast.. 
Financials ($)
Sales 2018 121 B
EBIT 2018 13 287 M
Net income 2018 6 225 M
Debt 2018 60 238 M
Yield 2018 3,46%
P/E ratio 2018 23,46
P/E ratio 2019 15,95
EV / Sales 2018 1,49x
EV / Sales 2019 1,37x
Capitalization 121 B
Chart GENERAL ELECTRIC COMPANY
Duration : Period :
General Electric Company Technical Analysis Chart | GE | US3696041033 | 4-Traders
Technical analysis trends GENERAL ELECTRIC COMPANY
Short TermMid-TermLong Term
TrendsBullishBearishBearish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 18
Average target price 17,1 $
Spread / Average Target 23%
EPS Revisions
Managers
NameTitle
John L. Flannery Chairman & Chief Executive Officer
Daniel C. Janki Treasurer & Senior VP-Global Operations
Jamie S. Miller Chief Financial Officer
Jim Fowler Chief Information Officer
Victor Abate Chief Technology Officer & Senior Vice President
Sector and Competitors
1st jan.Capitalization (M$)
GENERAL ELECTRIC COMPANY-20.34%120 639
3M COMPANY-14.53%119 439
SIEMENS0.42%115 843
HONEYWELL INTERNATIONAL-3.82%110 172
ILLINOIS TOOL WORKS-13.84%48 697
JARDINE MATHESON HOLDINGS LIMITED5.93%47 788