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General Electric raises free cash flow forecast on recovery hopes

By Ishika Dangayach on Jul 27, 2021 | 03:37 AM IST

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General Electric Co warned on Tuesday that inflationary pressures are expected to worsen throughout the year, notably in its jet-engine division.

The remarks come after the Boston-based industrial giant increased raised its outlook for industrial free cash flows, as early signs of a rebound in its aviation sector after unexpectedly reporting positive cash flow in the second quarter as industrial orders and revenue increased.

In an interview, CEO Larry Culp stated that the business is dealing with inflationary pressures through a mix of price hikes, improved procurement of parts and raw materials, waste removal, and increased efficiency.

"We're certainly not immune from these inflationary pressures," he told Reuters. "We're going to see more of that pressure in the second half."

Due to supply chain problems, GE's lead times and inventories have grown. However, if not for the resulting pricing pressure, Culp believes the company's quarterly earnings would have been much higher.

Culp said that GE is planning mitigating measures since it expects the logjam to last until 2022, Reuters reported.

Nonetheless, the company raises its free cash flow forecast for this year to $3.5 billion to $5 billion, up from $2.5 billion to 4.5 billion previously expected.

The aviation segment revenues increased 10% year on year to $4.84 billion, while orders grew 47% to $5.5 billion. Healthcare revenue rose by 14% to $4.45 billion, while renewable energy revenue increased by 16% to $4.05 billion, the company said

The industrial free cash flow was $388 million in the first quarter, up from -$845 million the prior quarter.

If the current trend continues, Culp said that he would not rule out reaching a $7 billion free cash flow objective before 2023.

The shares of the company soared by 1.5% to $13.12 around 1:56 PM ET.

The COVID-19 pandemic has wreaked havoc on the company's aviation business, which is typically its cash source, as airlines cut back on flights and grounded planes.

Culp said that, while the company is "carefully" monitoring the impact of the COVID-19's Delta variant, it still anticipates narrow-body aircraft departures to return to 2019 levels in 2023, Reuters stated.

With inputs from Reuters

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