Nearly $1 billion of GE earnings was wiped out by coronavirus

General Electric’s turnaround has been disrupted by the coronavirus pandemic.

The conglomerate said Wednesday it burned through $2.2 billion of cash during the first quarter as its jet engine business got slammed by a “rapid decline” in global commercial aviation orders in March.

GE (GE) estimated the health crisis wiped out about $900 million of its earnings and hurt free cash flow by around $1 billion.

“The impact from COVID-19 materially challenged our first-quarter results, especially in Aviation, where we saw a dramatic decline in commercial aerospace as the virus spread globally in March,” CEO Larry Culp said in a statement.

To cope with the downturn, GE is cutting jobs and slashing spending. The company announced that headcount at its power division fell by 700 during the first quarter and a hiring freeze was implemented. That’s on top of the roughly 2,600 jobs cut in GE’s aviation business.

GE also said it plans to lower capital spending companywide by 25% in 2020.

Prior to the crisis, GE was enjoying a comeback driven by efforts to slim down its portfolio, clean up its balance sheet and generate free cash flow by improving its operations. Even GE’s critics credited Culp, GE’s first ever outsider CEO, with saving the company from disaster.

Yet GE’s industrial free cash flow burn rate nearly doubled during the first quarter as the pandemic struck. Its adjusted profit dropped by a deeper-than-feared 62%.

Earnings at GE’s aviation, financial services and renewable energy divisions all fell. GE Power swung to a loss of $129 million. The only division to grow its bottom line was GE Healthcare, which makes MRI machines, CT scans and other medical equipment.

Revenue, however, only fell by 5% to $20.5 billion, beating estimates.

GE had warned earlier in the month that its results would be ugly. Yet GE shares retreated 2% on Wednesday. GE is down around 40% so far this year, giving back much of last year’s gains.

The second quarter will be worse

GE warned that its results will only get worse going forward because the second quarter will be the first full quarter in which the global economy is at a standstill because of the coronavirus pandemic. The company said it expects its results will “decline” compared with the first quarter.

Like much of Corporate America, GE indicated it is highly uncertain about the future.

Citing the “evolving nature of the COVID-19 pandemic,” GE said it can’t forecast “with reasonable accuracy the full duration, magnitude and pace of recovery” across its business. GE withdrew its guidance for 2020 earlier this year.

“While there are many unknowns, there will be another side — planes will fly again, healthcare will normalize and modernize, and the world still needs more efficient, resilient energy,” Culp said.

Jet engine orders nosedive

Unsurprisingly, the jet engine division suffered the biggest blow during the first quarter. Commercial engine orders plummeted 82% to 145. That included a 99% drop in orders for the LEAP engine, previously a major moneymaker for GE. The LEAP engine is the exclusive engine for the Boeing (BA) 737 MAX, which has been grounded for more than a year.

GE said it expects the aviation business will recover slowly from the “unprecedented decline” of 2020.

The bright spot at GE was undoubtedly its healthcare division, which experienced a spike in demand for ventilators and other products during the pandemic.

“In healthcare, we’ve been on the frontlines fighting COVID-19 since the early days in Wuhan. This is fundamental to our mission,” Culp said.

Yet GE said it is “accelerating” a planned transformation of its healthcare division, in part by reducing headcount.

The timing of the crisis is challenging for GE because its turnaround hinged on continued economic growth. Smaller profits and larger cash burn will give GE fewer resources to repay debt and invest in the future.

GE acknowledged this problem on Wednesday, warning in an SEC filing that market conditions and volatility “pose heightened risks to our timelines for decreasing our leverage.” The company said it now expects to achieve its previous leverage targets “over a longer period” than previously anticipated as it compensates for weaker cash flow.

Another problem for GE is that the crash in oil prices has hurt the value of its remaining stake in Baker Hughes (BKR). Citing “extreme volatility” in commodity markets, GE took a $4.6 billion loss on its investment in Baker Hughes (BKR).