General Electric runs into doubts on Wall Street over dividend cut, CEO vision
EVEN before John Flannery began talking, Monday looked like one more bad day for General Electric.
It began around 6.30am, with news that GE, once one of the most celebrated US companies, was cutting its quarterly stock dividend for only the second time since the Great Depression.
Then things got worse. In front of hundreds of investors in Midtown Manhattan, the new CEO delivered his long-awaited plan to shrink the beleaguered company back into Wall Street’s heart. GE, he said, would now focus on just three businesses – power, aviation and health-care equipment – and exit others that have defined the quintessential American conglomerate for decades.
The reaction in the stock market was swift and brutal. GE’s stock price, already down 35 per cent this year and the worst performer in the Dow industrials, tumbled on Monday by the most in two years. While Flannery’s plans were generally in line with recent speculation, his presentation left some investors wondering whether his revamp would be enough to right the the 125-year-old company.
“There is no doubt that the plan outlined today marks a new era for GE,” Deane Dray, an analyst at RBC Capital Markets, said in a note to clients. “That said, does it go far enough?”
GE plunged 6.9 per cent to US$19.08 at 12.39pm in New York after sliding as much as 7.1 per cent for the biggest intraday drop since August 2015.
“John Flannery’s strategic road map reflects a rigorous portfolio review, but suggests a tough slog ahead,” Gautam Khanna, an analyst at Cowen &Co., said in a note to clients.
In a sober presentation on a chilly morning, Flannery said 2018 would be a “reset year.” He cautioned that the powerequipment unit would take a couple years to rebound.
GE will explore options to exit its locomotives unit and its majority stake in Baker Hughes, a provider of oil-field equipment and services. The company is also reviewing options for its lighting operations, a business that traces its origins to the company’s formation by Thomas Edison.
“The GE of the future is going to be a more focused industrial company,” Flannery, who took over in August from Jeffrey Immelt. “Soon we’re going to be proud of the performance.”
Flannery already has made changes to top management, sought deep cost cuts and welcomed a representative of activist investor Trian Fund Management to GE’s board. Flannery, who previously ran GE’s unit manufacturing medical scanners and other health equipment, said last month that the company would divest at least US$20 billion of businesses.