By Alwyn Scott and Rachit Vats
(Reuters) - General Electric (NYSE:GE) Co said on Tuesday it generated more profit and lost less cash than expected in the first quarter, suggesting an improving outlook under its new leader that sent its shares and bonds higher.
New Chief Executive Larry Culp cautioned, however, that the results stemmed largely from the timing of payments to suppliers and from customers, and did not alter GE's financial outlook for the year.
"One quarter is a data point not a trend," Culp said on a conference call with analysts.
GE's profit from continuing operations more than tripled as sales rose in GE's aviation, oil and gas, and healthcare units. At the same time, negative cash flow from industrial business was $1.2 billion, much less than the $2.16 billion outflow that analysts, on average, were expecting.
Culp had set low earnings targets in March and warned that GE's industrial cash flow could be negative by as much as $2 billion.
GE's shares rose 4.5% to close at $10.17, after the call. They had risen more than 10% before the market opened.
GE bonds also rallied, extending a recovery in more than $100 billion of GE debt. Yields on dozens of longer-dated issues were at their lowest since Nov. 1. A $1 billion GE Capital bond with a 4% coupon due in July 2035 was up more than 1.5 cents at nearly 87 cents and a yield of 5.2%, compared with a low of 63 cents on the dollar last November to yield more than 8%.
Investors have been keen for a turnaround since GE named Culp last October to restore earnings and improve a stock price that has fallen by more than two-thirds since 2016.
GE took a string of multibillion-dollar writedowns last year, so the slowing in cash outflows in the latest quarter raised hopes that its fortunes have started to improve.
GE's industrial free cash flow showed a "much smaller outflow than we expected," said Julian Mitchell, an analyst at Barclays (LON:BARC), and "should drive a positive reaction in the stock."
But while the Boston-based conglomerate stuck to its full-year financial forecast, it noted "new risk" from Boeing (NYSE:BA) Co's 737 MAX jet, for which GE engines with partner Safran (PA:SAF) SA of France. The plane model was grounded worldwide last month after a second fatal accident in less than five months.
Profit margins also contracted at GE's aviation, power and renewable energy businesses, the three core units that GE plans to retain as it undergoes a break-up announced last year.
A 1.6 percentage point drop in GE's industrial margins in the quarter is a "stark reminder of the challenges that the company still faces," said Rene Lipsch, lead GE analyst at Moody's. He added that he expects margins to be flat or slightly improved by year-end.
GE's cash balance was boosted mainly the $2.9 billion sale of locomotive business to Wabtec Corp.
Culp has said the 2019 "reset" of GE would result in negative cash flow at its most-troubled business, power, through 2020 before turning positive in 2021. GE wrote down $22 billion in goodwill at the unit last year.
In the latest quarter, power orders fell 14% and profit fell 71% to $80 million on revenue of $5.7 billion, down about 22% from a year earlier, GE said.
Some saw signs that the power unit's prospects will improve. "This was a business that everyone gave up as dead ... but (it) is more than able to fend for itself," William Blair & Co analyst Nicholas Heymann told Reuters.
Earnings from continuing operations attributable to GE shareholders rose to $954 million in the first quarter ended March 31 from $261 million a year earlier.
On an adjusted basis, GE earned 14 cents per share. Analysts had expected 9 cents per share, on average.
Total revenue fell 2% to $27.29 billion, above analysts' average estimate of $27.05 billion.