General Electric Company (NYSE:GE) reported 2Q17 CFOA (GE definition of operating cash flow) of $1.5bn – equating to roughly -$200mm for the first half of 2017. The company had emphatically asserted last Q that 1H17 cash flow would be above last year’s $400mm CFOA in 1H16. That said, the cash generation of $1.5bn marked sizeable turnaround from 1Q17’s loss of $1.6bn.
Organic growth of 2% exceeded Deutsche Bank 1% target and compares to 6% organic Industrial growth last Q. Organic equipment orders of 6% compare to 5% last Q. Power equipment orders declined 1% - a contrast with last Q’s up 25% Power equipment order growth – that was reportedly driven by lower Steam (Alstom) orders. Power realized 24 GT orders, up from 12 last Q which Deutsche Bank views favorably. GE incurred 6 cents of “restructuring and other” charges. We had forecast 10 cents. The Industrial tax rate of 13% compared to our 14.5% estimate.
Overall, while the headline beat (Deutsche Bank expected GE to beat the consensus) may appear favorable on the surface, the cash shortfall calls into question GE’s ability to make its 2H17 cash targets. The organic growth (which doesn’t really waterfall to the bottom line) and orders appear to be relatively consistent with expectations given the trend of the first quarter, ex weak Steam/Power orders which Deutsche Bank expect to be a focus of investor scrutiny. Deutsche Bank Reiterates Sell.