By Alwyn Scott and Rachit Vats
(Reuters) - General Electric Co beat estimates for sales and cash flow in the fourth quarter and said it had reached a tentative deal to settle a subprime mortgage case with U.S. regulators, sending its shares sharply higher.
GE shares were up 9.6 percent in premarket trading as the company said profits rose in its aviation, healthcare and oil-and-gas businesses, offseting weakness in power and GE Capital.
Many analysts had braced for disappointing fourth-quarter results, and some expected new Chief Executive Larry Culp to be blunt about bad news, a break from spin GE has applied in the past. They wanted a clear earnings forecast and GE's strategy for achieving it. But GE offered no 2019 forecast, and that is now expected to come at an analyst meeting Culp has promised but not yet scheduled.
"The only relevant data in the quarterly numbers is that actual sales and the free cash flow from the industrials business were better than expected. The company also settled one of their largest litigations with the DOJ, which is a big relief,” William Blair analyst Nicholas Heymann said.
“Net results of actions since Larry Culp took over in October is that things are moving forward and we see risk is improving while liquidity increasing,” he said.
The U.S. industrial conglomerate reported a $666-million (507 million pounds) profit for the fourth quarter and said revenue rose 5 percent to $33.3 billion, above analyst estimates of $32.6 billion, according to Refinitiv IBES.
The 2018 results cap an exceptionally bad year for GE that began with an $11 billion charge and disclosure of accounting investigations by U.S. regulators, and ended with GE naming an outsider CEO keen to speed up $20 billion in asset sales and chip away at GE's massive debt.
The 127-year-old conglomerate also was booted from the Dow Jones Industrial Average , had its credit ratings cut to three notches above junk, eliminated executive bonuses, slashed its quarterly dividend to a penny, restated earnings for the prior two years and saw a $10-billion fossil-fuel power acquisition turn sour as wind and solar power gained momentum and GE's gas-turbine business struggled with faulty parts.
While not providing forecasts, Culp on Thursday set targets that matched what analysts and investors have been clamouring for: lifting GE's triple-B credit rating to single-A quality, reducing industrial debt and restoring the dividend. Culp did not set a timeframe.
GE's closely-watched industrial free cash flow of $4.9 billion in the quarter, down from about $6.8 billion last year, topped the $4 billion threshold that investors were looking to beat, Gordon Haskett analyst John Inch wrote in a note. He said GE had liquidated inventory and improved bill collection in renewables but it was unclear whether those improvements could continue.
"The results are better than expected because expectations were so low," said Erik Gordon, a professor at the University of Michigan Ross School of Business. "The company still faces the huge challenges of managing its mountain of debt and restoring investor confidence in the accuracy of its numbers."
GE's ailing power division lost $872 million in the quarter and its GE Capital finance arm lost $177 million, GE said.
"Our strategy is clear: de-leverage our balance sheet and strengthen our businesses, starting with Power," Culp said in a statement.
GE's profit totalled 8 cents a share, compared with a loss of $1.29 a share a year ago. On an adjusted basis, GE earned 17 cents a share, below analyst estimates of 22 cents, according to Refinitiv IBES data.
(Reporting by Alwyn Scott in New York and Rachit Vats in Bengaluru; Editing by Saumyadeb Chakrabarty and Nick Zieminski)