GE shares slump as worsening supply chain

General Electric Co said that fresh pandemic-related lockdowns in China as well as the war in Ukraine have exacerbated supply chain disruptions and inflationary pressure, putting its full-year profit outlook at risk and prompting a sell-off in its shares. While the Boston-based industrial conglomerate retained the outlook issued. It said that the current trends suggest it would hit the lower end of its earnings forecast.

The company has raised prices for its products and is invoking price escalation clauses in its service contracts. It is also trying to find alternative sources for parts and to improve productivity to reduce cost. Chief Executive Larry Culp said that the company will not be able to fully offset inflation this year, pressuring its profit. Culp, however, expects the measures to result in an improved performance in the current quarter as well as the second half of the year. Culp told that inflation will be a net headwind for them.

In January, the company projected adjusted profit for the year to be in the range of $2.80 to $3.50 per share. It also expected to post high-single-digit revenue growth this year. Culp said that GE expects to be at the lower end of all of those sub-ranges. The company’s shares slumped about 12% at $79.27 in midday trade and were trading at the lowest level since December 2020. Analysts at Wolfe Research called the company’s comments on the 2022 outlook disappointing. Two years into a pandemic that has snarled supply chains across the globe and driven up costs for everything from labor to raw materials. The companies are scrambling to produce enough to feed current demand and also to restock inventory.

China’s zero Covid policy to combat the Omicron variant of the coronavirus has brought fresh lockdowns, worsening the situation. Meanwhile, the Russian invasion of Ukraine and related Western sanctions on Russia have driven up energy costs. Rival Siemens Energy said that it was reviewing its full-year outlook amid rising costs at its wind turbine division Siemens Gamesa, fallout of the war in Ukraine and sanctions imposed on Russia. GE said that the Russian invasion, China lockdowns and other supply-chain issues adversely impacted its revenue in the quarter through March by about 6 percentage points. Culp said the situation in China has improved in the past 10 days as GE has been able to bring workers at its facilities in Shanghai. Still, the company is trying to build up inventory and alternative capacity to deal with any unforeseen circumstances. The company has suspended its operations in Russia, which accounts for less than 2% of its overall sales. GE’s power business, has a bigger exposure to the country.

The company said that it had recognized $200 million in pre-tax charges in the first quarter due to Russia’s invasion and the sanctions. GE reported higher-than-expected adjusted profit of 24 cents a share in the quarter. Revenue for the quarter came in at $17.04 billion, topping Wall Street’s estimates of $16.89 billion. The company burned through $880 million in cash in the first quarter.