Times are tough at General Electric, and the big problem is cash.

That much was evident on an extraordinary third-quarter earnings call on Friday, with outgoing GE CFO Jeffrey Bornstein saying that “the buck stops with me” and CEO John Flannery declaring, “We can, and we will, and we must improve the cash flow and margins of the company.”

Flannery said worse things in a CNBC interview that day. The industrial giant’s current projected cash flow of $7 billion for 2017 is “horrible,” the new chief executive said in the CNBC interview, “but investors shouldn’t expect that to be ‘the new normal.’”

During the earnings call, Flannery, Bornstein, and incoming CFO Jamie Miller made it clear that the $7 billion cash-flow figure that Flannery was referring to was industrial cash flow from operating activities (CFOA). The company defines CFOA, a non-GAAP measure, as “GE’s cash from operating activities less the amount of dividends received by GE from [General Electric Capital],” the industrial conglomerate’s struggling financial services unit.

Miller noted that the $7 billion “is well below the $12 billion estimate we provided at second-quarter earnings, and it’s principally driven by three businesses.” The three culprits are GE’s oil and gas (off about $1 billion), renewable (off about $500 billion), and, especially, its power operations, which were off about $3 billion in CFOA.

“Power is the biggest driver” of the cash flow shortfall, Miller said, due to lower sales volume, higher inventory, and “the timing of payments on long-term equipment contracts.” About half of the cash decline in GE’s oil and gas business stemmed from lower bill collections in the first half of the year, and the rest was driven by a change in the company’s method of showing the collections on a dividend basis for the second half of the year. The cash drainage in the company’s renewables business originated from lower-than-expected sales volume, she added.

Following a 90-day review of the company’s financial situation, Flannery, who took over from Jeff Immelt as CEO in August, said that he would “run the company for cash generation and performance better than peers.” In the face of the company’s cash decline, Flannery apparently will adopt a more modest agenda than that pursued by Immelt and Bornstein, who, as recently as last year, envisioned a growth-fueled company triggered by involvement in the “industrial internet” and other transformational projects.  

“We will have a much smaller, more focused corporate, and we’re right-sizing our businesses to face market realities, and we’ll be mindful of the need to balance aggressive focus on costs with critical investments in long-term growth initiatives,” Flannery told analysts on Friday. “We will be much more disciplined at all levels of the company on capital allocation, our [new product introduction] spend, [power & energy] investments, and working capital.”

In a rarely heard moment on an earnings call, Bornstein acknowledged the failures that led to the company’s move to oust him as CFO. “I’ve talked a lot about accountability inside the company, and that sense of accountability has to start with me,” he said.

“We are not living up to our own standards or those of investors, and the buck stops with me. John [Flannery] and I made this decision together,” he added, noting that he had spent 28 years with GE. “John is driving a lot of change in the company and its culture. And it’s the right kind of change.”

During the earnings call, Flannery fielded questions from analysts about the possibility that GE’s cash problems might cause it to allocate less cash — or no cash — to the dividend. For instance, Steven Winoker, a UBS managing director, asked about “the sustainability of the dividend.”

Winoker questioned how the company could pay a previously discussed $8 billion in dividends this year in the face of the diminishment to $7 billion of CFOA, as well as $4 billion in capital expenditures. “So how is that level of dividend sustainable without jeopardizing the future growth of the company?” the analyst added.

Flannery said that the company would report further details about its plans at its November investor meeting. Noting that GE’s philosophy is “managing for total shareholder return,” the CEO said that there needs “to be a balance of investing in growth — organic and inorganic growth — and a dividend payout.”

Flannery further noted that the projected $7 billion in CFOA might expand quickly, thereby brightening the dividend picture.

The $7 billion cash position is “not a ZIP Code we’re going to remain in,” he said. “We expect improvement in that cash flow substantially in 2018.”

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