Gen­eral Elec­tric stock con­tin­ues steep dive as share­hold­ers pan CEO’s turn­around strat­egy

The Globe and Mail (BC Edition) - - GLOBE INVESTOR - RICHARD CLOUGH

Gen­eral Elec­tric Co.’s stock plunge deep­ened as its top lead­ers failed to soothe share­holder con­cerns about the turn­around plan for the em­bat­tled icon of Amer­i­can busi­ness.

Chief ex­ec­u­tive John Flan­nery ac­knowl­edged that it’s “show-me time” for in­vestors as the com­pany seeks to show con­crete re­sults from the over­haul he out­lined a day ago. In an in­ter­view on Tues­day on CNBC, he said he wasn’t sur­prised by the neg­a­tive stock re­ac­tion af­ter “we dis­ap­pointed peo­ple with some tough news,” in­clud­ing a div­i­dend cut and a lower 2018 earn­ings fore­cast.

Mr. Flan­nery plans to fo­cus GE on three busi­nesses – power, avi­a­tion and health-care equip­ment – while ex­it­ing oth­ers that have long de­fined the 125-year-old man­u­fac­turer. The highly an­tic­i­pated strat­egy stopped short of a full-scale breakup or other rad­i­cal change, leav­ing in­vestors to ques­tion how quickly GE can re­cover from prob­lems such as a slow­down in the power-gen­er­a­tion mar­ket.

“There’s a big chal­lenge ahead of GE,” said Scott Law­son, vice-pres­i­dent at West­wood Hold­ings Group Inc., which sold most of its GE shares ear­lier this year. Af­ter Mon­day’s pre­sen­ta­tion, “you re­ally have no rea­son to change your out­look on the busi­ness.”

GE sank al­most 6 per cent to $17.92 (U.S.) as mar­kets closed in New York af­ter tum­bling the most in eight years on Mon­day. The stock price is at its low­est in­tra­day level in al­most six years. GE on Mon­day said it would ex­plore op­tions to get out of in­dus­tries such as light­ing and lo­co­mo­tive-man­u­fac­tur­ing, while also weigh­ing an exit of its stake in Baker Hughes, a provider of oil field equip­ment and ser­vices. GE will re­tain busi­nesses that ac­counted for about 80 per cent of rev­enue last year.

The com­pany also cut its quar­terly div­i­dend in half – to 12 cents a share – and dra­mat­i­cally low­ered per-share profit ex­pec­ta­tions for next year from the $2 tar­get it has dis­cussed since 2015. Un­der GE’s new fore­cast, earn­ings will be $1 to $1.07 a share in 2018, which Ms. Flan­nery called a “re­set” year. “The com­pany’s turn­around will now be more pro­tracted than pre­vi­ously an­tic­i­pated,” said Deane Dray, an an­a­lyst at RBC Cap­i­tal Mar­kets. He cut his rat­ing on GE on Tues­day to sec­tor per­form and re­duced the share-price tar­get to $20 from $25.

“The bot­tom line is that Mr. Flan­nery’s plan fell short of the sweep­ing re­set that in­vestors were look­ing for,” he said.

Chief fi­nan­cial of­fi­cer Jamie Miller made a case for GE’s prospects dur­ing a pre­sen­ta­tion on Tues­day at a Gold­man Sachs Group Inc. con­fer­ence. Mr. Flan­nery plans to con­tinue the Wall Street ap­peal on Wed­nes­day at a UBS Group AG event.

Legacy is­sues with pen­sion and in­surance oper­a­tions could con­tinue to weigh on the com­pany as it deals with chal­lenges in the power mar­ket, ac­cord­ing to Jeff Sprague, an an­a­lyst at Ver­ti­cal Re­search Part­ners. With lit­tle hope of a near-term re­bound, in­vestors could be in for a “slow grind,” he said in a note to clients.

“We be­lieve GE has set a plau­si­ble guid­ance frame­work for 2018, but are not con­fi­dent there is a strong growth out­look off the new base,” wrote Mr. Sprague, who cut his price tar­get to $18 from $20. “Power mar­kets will likely re­main chal­lenged through the end of the decade. Avi­a­tion looks strong, but is in a 10-year up­cy­cle that won’t run for­ever, and Health­care just plods along.”

THE GLOBE AND MAIL, SOURCE: BLOOMBERG / NOTE: VISA IS ONLY DOW MEM­BER NOT IN­CLUDED AS IT'S NOT BEEN PUB­LICLY TRADED FOR THE EN­TIRE TIME FRAME IN QUES­TION

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