General Electric investors sent the Boston-based company’s shares up 11 percent on Wednesday after chief executive Larry Culp said its worst days are in the rear-view mirror.
Speaking virtually at the Morgan Stanley Laguna Conference, Culp offered a promising outlook: After a rough first half of 2020 in which the company bled money to the tune of $4.3 billion in lost cash from industrial operations, GE would be cash-flow positive in the second half of the year, and also in 2021.
“You’re going to see the positive second half get carried by a robust finish,” Culp said.
Shares steadily rose in the afternoon on Wednesday as Culp spoke, ending the day up 65 cents, to close at $6.75 a share. The stock has been trading in the $6 to $7 range throughout the summer.
The stock previously started to rebound amid Culp’s efforts to put the brakes on two years of steady declines. But then the COVID-19 pandemic hit. People stopped flying. GE’s aviation business suddenly transformed from a profit engine into a black hole. As a result, Culp in May unveiled plans to trim that division’s workforce by 25 percent, a move that meant the loss of 13,000 jobs around the world.
On Wednesday, Culp said he has made good progress on removing $2 billion in annual costs from the company’s budget. The April-June quarter, he said, “was the toughest quarter we’re going to see in our career, if not our lives.”
GE builds and services jet engines through its aviation arm, and also runs an aircraft leasing business within its financial services division. Both have been hurt by the sharp downdraft in air travel, although GE’s military business has been a bright spot.
Culp said commercial flying has largely rebounded in China to pre-COVID levels, but a recovery in US aviation remains off in the distance. “This industry will recover,” Culp said. “It’s not going to be next year.”
A widely available COVID-19 vaccine could provide assurance to consumers and businesses that it’s safe to travel by air again. Culp said two medical experts that he regularly relies on for advice have become more positive about the prospects for such a vaccine than they were in the spring.
“Whether it’s a vaccine or the return of the animal spirits, I’m of the view that people want to get back to it,” Culp said, referring to a term to describe emotions that positively influence economic behavior. “I know how exhilarating it has been for those of us in the Boston office to get back to it in a normal fashion.”
Parts of GE’s health care business, another normally strong performer, also suffered during the pandemic due to the drastic slowdown in elective procedures and tests across the world. (GE did see strong demand for ventilators and patient monitors because of COVID-19.) Culp said the health care business is recovering at a faster pace than he initially expected, particularly with regard to scanners such as MRI machines. The division, he said, is on “a really nice trajectory” for the second half of the year.
“I sit here today feeling very confident about where we’re going despite all the trials and tribulations that COVID has thrown at us,” Culp said. “We’re going to have to make our own luck.”