July 27 (Reuters) – General Electric Co (GE.N)Chief Executive Larry Culp said on Tuesday the industrial conglomerate is facing inflationary pressure that is set to intensify in the remainder of the year.
The comments came after the Boston-based company lifted its free cash flow forecast for the year after unexpectedly reporting positive cash flow in the second quarter as industrial orders and revenue returned to growth.
In an interview, Culp said the company is managing the inflationary pressure through a combination of price increases, better sourcing of parts and raw materials, elimination of waste and higher productivity.
“We’re certainly not immune from these inflationary pressures,” he told Reuters. “We’re going to see more of that pressure in the second half.”
But for the price pressure, Culp said the company’s quarterly earnings would have been better. The company is drawing up mitigation measures as it expects a supply chain logjam to persist in 2022, he said.
GE now expects free cash flow this year to be $3.5 billion to $5 billion, up from its prior forecast of $2.5 billion to $4.5 billion.
It reported a free cash flow of $388 million in the quarter. That compared with Refinitiv’s average analyst estimate of an outflow of $287 million and followed an outflow of $2.1 billion last year.
All of GE’s industrial segments saw an improvement in profit margin in the latest quarter, with the aviation unit posting the biggest improvement.
Culp said an improvement in the services business from the previous quarter has bolstered the outlook for the rest of the year.
If the momentum continues, Culp said he would not rule out hitting a $7 billion free cash flow target before 2023.
Free-cash flow is closely watched by investors as a sign of the health of GE’s operations and ability to repay debt.
Shares were up 4% to $13.43 in premarket trading.
The aviation business, usually the company’s cash cow, has been hammered by the COVID-19 pandemic as airlines cut back on flights and grounded aircraft.
GE said the business is showing “early signs” of recovery as engines and services orders were up 47% from a year ago.
GE reported adjusted profit of 5 cents per share for the quarter, compared with Refinitiv’s average analyst estimate of a profit of 3 cents per share.
Reporting by Rajesh Kumar Singh in Chicago and Abhijith Ganapavaram in Bengaluru; Editing by Saumyadeb Chakrabarty, Bernadette Baum and Steve Orlofsky
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