Rare General Electric payout cut
General Electric’s new boss is shrinking the company and slashing the dividend as he wrestles with one of the biggest slumps in the industrial behemoth’s 125-year history.
CEO John Flannery was planning to focus on aviation, power, renewable energy and healthcare equipment when he unveiled his plan for General Electric at an investor meeting on Monday, according to a person familiar with the matter.
He was also preparing to exit some other businesses and chop the quarterly payout in half — only the second cut since the Great Depression.
The extraordinary steps underscore the severity of the challenges facing the new CEO, who is preparing for a dramatic overhaul three months after taking the reins from Jeffrey Immelt. Plagued by poor cash flow amid slumping markets in power generation and oil-field equipment, General Electric is by far 2017’s biggest loser on the Dow Jones Industrial Average.
Flannery has already made changes to the top management, sought deep cost cuts and welcomed a representative of activist investor Trian Fund Management to the board.
In addition to jet engines, gas turbines and ultrasound machines, the company’s offerings include locomotives and an aircraft-leasing portfolio. Its lighting products trace their origins to General Electric’s formation by Thomas Edison.
The quarterly payout will drop 50% to 12 US cents a share, the Boston-based company said, in a move that will save about $4bn a year.
GE last reduced the dividend in 2009 as it struggled with fallout from the financial crisis.
“We understand the importance of this decision to our share owners and we have not made it lightly,” Flannery said.
“We are focused on driving total shareholder return and believe this is the right decision to align our dividend payout to cash flow generation.”
In October, GE slashed its expectations for 2017 profit and cash flow as Flannery called the firm’s performance “completely unacceptable”.
Investors have been bracing for a dividend cut as the company’s slide deepened in recent weeks. The stock has lost about $100bn in market value in 2017 and has fallen 35%.
The dividend had been recovering from a dramatic 68% cut in 2009, which Immelt has called “the worst day of my tenure as CEO”.
Flannery’s plan to refocus the company was reported earlier by the Wall Street Journal, which said he planned to sell the majority stake in Baker Hughes, a provider of oil-field equipment and services.
WE UNDERSTAND THE IMPORTANCE OF THIS DECISION TO OUR SHARE OWNERS AND WE HAVE NOT MADE IT LIGHTLY