Summary
- GE pre-funded $2.5 billion of pension funding requirements and reduced debt at GECC by $1.5 billion.
- The debt paredown should improve GECC's debt/equity to 3.5x, which exceeds management's target.
- GE has a window of opportunity to improve its credit profile. I expect more balance sheet actions in the first half of 2021.
- GE is up over 50% over the past six months. An improving outlook for its Industrial businesses will likely drive the narrative. I rate GE a Hold.
- This idea was discussed in more depth with members of my private investing community, Shocking The Street. Get started today »
Source: Barron's
General Electric (GE) recently announced it was taking actions to reduce its balance sheet obligations by $4 billion:
GE today announced a series of actions it took on December 7, 2020, as part of its plan to solidify its financial position, building on a series of transactions earlier this year:
- GE voluntarily pre-funded $2.5 billion of estimated minimum ERISA GE Pension Plan funding requirements for 2021, 2022, and into 2023.
- GE also repaid $1.5 billion of its intercompany loan to GE Capital.
GE Chairman and CEO H. Lawrence Culp, Jr., said, “With these balance sheet actions, along with the series of proactive actions we’ve taken this year, we continue to execute on our commitment to solidify GE’s financial position.
CEO Larry Culp reiterated the company could generate Industrial free cash flow ("FCF") of $2.5 billion in Q4 2020 and positive FCF in 2021. Robust FCF could give it the space to pare balance sheet obligations by $4 billion and still maintain liquidity. In Q3 2020, GE reported a revenue decline of 16% Y/Y for its Industrial operations. As the business retrenches, the company should monetize working capital to drive FCF. The announcement was important for two other reasons.
