GE’s Profit Rises, but Supply-Chain Woes Weigh on Sales

Overall third-quarter revenue fell 1% from a year earlier to $18.43 billion, while expenses declined 7%. Wall Street analysts were expecting revenue to increase 4% to $19.3 billion, according to FactSet.

“We’re feeling the impact of supply-chain disruptions in many of our businesses with the largest impact to date in healthcare,” Chief Executive

Larry Culp

said on a conference call Tuesday. He expects such challenges to continue into the first half of next year, even as GE tries dual sourcing, finding alternative parts and redesigning products.

“I’m not sure we’re yet at a place where we would say that things are stable,” he said. “We may have improvements in one commodity or in one business. But almost without fail, the next day, a commodity, a supplier, a logistics provider that we thought was good for the next six weeks or the next six months offers up a revision to that outlook.”

GE’s quarterly profit came in ahead of Wall Street’s expectations and the manufacturer raised its earnings goals for the full year. It also narrowed the forecast for free cash flow from its industrial business, a closely watched metric.

GE said 2021 revenue would be flat, down from a previous view of growth by a low-single digit percentage. The company projected increased revenue, cash flow and profit margins for 2022 but said it would provide more details at a later date.

In the third quarter, orders rose in every GE division for both services and equipment compared with the year-earlier period when the outbreak of Covid-19 curbed economic activity.

GE’s healthcare division has been a bright spot this year, but the company said shortages constrained growth in the latest quarter. Sales fell 5% to $4.34 billion in the business; GE said sales would have been up 4% if the company had filled all of its orders for MRI machines, CT scanners and other hospital equipment.

Mr. Culp recently passed his third anniversary of running GE, a job he took in 2018 after being on the struggling company’s board for just six months. At the time, GE faced enormous debt and trickling cash flow, largely a result of hidden costs in its financial-services unit and mismanagement of its core power business.

After taking the reins, Mr. Culp cut GE’s dividend to a token penny a share, sold major businesses like transportation, oil and life sciences. He streamlined existing divisions using lean management principles, while betting much of the future on the continued growth of the aviation industry. When the pandemic hit, that bet turned sour as airlines grounded planes and canceled jet purchases, prompting GE to lay off a quarter of that division’s workers.

GE shares are up about 22% this year, closing Monday at $105.30, matching the increase in the S&P 500 index over the same period. The company completed a 1-for-8 reverse stock split in August.

Since Mr. Culp joined on Oct. 1, 2018, GE’s total shareholder return, which includes dividends, was 14.7% as of Monday’s closing price, compared with a total return of about 65% from the S&P 500, according to FactSet. The shares were ahead 2.5% in Tuesday afternoon trading.

The share-price performance has lagged behind rivals but GE’s debt load is much smaller from asset sales. It is shedding most of its jet-leasing business in a deal now expected to close next week, sooner than previously expected. That deal with

AerCap Holdings

NV is expected to bring in $24 billion in cash by year-end, helping cut GE’s debt load by more than $75 billion in three years.

In a sign of GE’s confidence in its improving financial position, the company made two small healthcare acquisitions in the past year and recently agreed to buy medical-imaging company BK Medical for $1.45 billion in cash.

GE narrowed its 2021 industrial cash flow projection to a range of $3.75 billion to $4.75 billion, from a previous view of $3.5 billion to $5 billion. It now expects 2021 earnings per share of $1.80 to $2.10, up from a previous range of $1.20 to $2 a share. Analysts expect $1.88 a share, according to FactSet.

Write to Thomas Gryta at [email protected]