Eyeing cuts, GE resets
Company to slash dividend, refocus on profitable areas
General Electric is taking drastic steps to “reset” its struggling operations — including slashing its dividend and paring down its focus to power, aviation and health care.
And while the company’s move to Boston is safe, analysts said the company needs to back up its talk with performance before Wall Street buys back in.
CEO John Flannery an- nounced the moves at an investor conference in New York City yesterday — declaring 2018 a “reset year” and confirming predictions of a dividend cut with a reduction from 96 cents per share to 48 cents per share annually. Flannery said the company’s current dividend payment of $8.4 billion exceeded cash flow.
“We understand this is an extremely painful action for our shareholders, our owners,” Flannery told investors. “It’s not a decision we took lightly, but with extreme consideration and deliberation of what the alternatives were.”
Flannery said the $177 billion company is looking to sell off or exit areas like lighting and transportation in order to concentrate on its power, aviation and health care supply wings, reiterating plans to divest $20 billion over the next two years. That includes plans to sell Current, the Boston-based energy management company that employs 50 people here and 2,300 worldwide.
GE has already announced layoffs for a
‘This is the opportunity of a lifetime, to reinvent an iconic company. ... 2018 is a reset year for us . ... complexity has hurt us.’
— JOHN FLANNERY CEO of General Electric quarter of its corporate staff — about 1,500 people — and some Boston employees have been cut, a spokesman said, calling the cuts limited but declining to give numbers.
But the company’s plans to move its corporate headquarters to Fort Point, along with 800 jobs, remain unchanged, and Flannery pitched the downshift as an opportunity to “reinvent” GE.
“This is the opportunity of a lifetime, to reinvent an iconic company . ... 2018 is a reset year for us,” Flannery said. “We’re going to be a more focused industrial company ... complexity has hurt us.”
Flannery said the company’s board will shrink from 18 to 12, even with five new members by next year, and he said cash bonuses for high-level employees will be replaced by equity. But he also predicted earnings next year will be $1 to $1.07 a share, below market expectations — and initial market reaction was poor, with shares declining 7 percent after the announcement, as analysts said investors are still wary of GE’s ability to right its course.
“Given the underperformance, there’s been some credibility that’s been lost,” said Jeff Windau, an analyst for Edward Jones. “It’s going to be a bit of a show-me story in the near term. If they can really focus on the big drivers of the business and monetize some of the others, in the longer term there stands to be some benefits.”
“They’ve got to demonstrate that they’re a focused, disciplined and committed company. What we saw in the past 16 years is a company that was just chasing lines of business, trying to catch something wherever they can and that has not helped the company,” said Ivan Feinseth, director of research at Tigress Financial Partners.
“They needed a seismic shift.”
Feinseth said he is more optimistic about GE now that speculation about its dividend was over.
“Everybody’s worst fear about the dividend is now behind them,” Feinseth said.