Fitch Ratings downgraded General Electric Co. and its financial services unit, saying it expects the company's cash flow and earnings to remain constrained while it pursues an extensive restructuring and portfolio review and fixes its troubled power business.
The long-term issuer default ratings of the conglomerate and GE Capital were lowered to A from A+, while the short-term issuer default ratings were affirmed at F1. The outlook on the ratings was negative.
"The company has considerable resources to address its operating challenges, but financial results could remain weak until the company completes its restructuring," said Fitch, which also expects GE's portfolio actions to lessen the diversification that supported the previous rating.
Fitch projected GE's free cash flow after dividends and before debt-funded pension contributions to be around $2 billion in 2018. "This level is low and reflects the impact of deteriorating margins in the power business and cash outflows for restructuring and contract assets," the rating agency said.
GE's free cash flow may not significantly increase before it completes its restructuring and business dispositions, according to Fitch.
GE could be hit with another ratings downgrade if free cash flow after dividends does not increase as expected, Fitch said. The ratings could also be lowered if EBITDA margins do not improve significantly after 2018, or if leverage does not recover from current elevated levels.
In May, GE Chief Executive John Flannery affirmed the company's profit targets for 2018, but warned that the power business would not attain profit growth due to a weak market expected to remain through 2020.