GE plans major cuts of $20B in operations
New CEO says it’s urgent for company to fix culture, too.
General Electric’s new CEO is starting to lay out bold plans to return the conglomerate to its industrial roots by slashing costs and streamlining its operations.
John Flannery said Friday that the company will shed business units worth more than $20 billion over the next year or two.
Flannery, who has been on the job less than three months, is expected to provide more details next month on how he will put his own stamp on the Boston-based manufacturing giant. But he offered plenty of hints after GE’s latest disappointing financial results.
GE drastically cut expectations for the full year after its third-quarter profit fell more sharply than expected due to large restructuring charges. Flannery called the results unacceptable.
“It’s also clear from our current results that we need to make some major changes with urgency and a depth of purpose,” he said on a conference call with analysts.
The company’s shares slid 6 percent in morning trading but recovered throughout the day. They ended regular trading up 25 cents at $23.83.
Flannery led GE’s health care unit until becoming CEO in August. He replaced Jeff Immelt, who had reshaped GE after taking over from legendary CEO Jack Welch but couldn’t reverse a slump in the company’s stock while the overall market boomed. GE shares are down 25 percent this year, the worst performer in the Dow Jones industrial average.
Immelt also came under fire for executive perks. GE acknowledged that on occasions an empty plane followed the CEO’s jet on trips, and one of Flannery’s first moves was grounding GE’s fleet of six corporate jets. Flannery has replaced several top executives.
On Friday, Flannery did not mention Immelt by name but said he was focusing on fixing GE’s “culture,” which he said “needs to be driven by mutual candor and intense execution, and the accountability that must come with that.” He mentioned the overhaul of the top executive ranks and the addition to the board of a representative from activist investor Trian Fund Management.
“Things will not stay the same at GE,” he vowed.
The CEO promised more details on GE’s transformation at a Nov. 13 meeting, but he talked Friday about major cost cuts across the board and the exit from a slew of businesses.
General Electric Co. has been paring businesses for well over a decade now.
The drive to get lean has come with a big price tag.
During the quarter, profit fell 9 percent to $1.84 billion, or 21 cents per share. Earnings, adjusted for non-recurring costs and to account for discontinued operations, came to 29 cents per share, but that’s still far from the per-share earnings of 49 cents that Wall Street had expected, according to Zacks Investment Research.
Revenue jumped 14 percent to $33.5 billion, exceeding the $31.92 billion analysts had expected. Sales in the power unit, GE’s biggest source of revenue, fell 4 percent and the unit’s profitability fell by half.
But other parts of GE are growing including aviation, the company’s second-biggest business — GE makes jet engines — and health care. Revenue from the oil and gas division nearly doubled on the acquisition of Baker Hughes, which closed in July.