General Electric slashes quarterly dividend to one cent
Conglomerate books $22.8B quarterly loss on accounting charge now subject of probe
General Electric Co. slashed its dividend to a token amount and said federal regulators had opened a criminal probe of its accounting practices, as the struggling conglomerate seeks to restructure under new Chief Executive Larry Culp.
Executives revealed Tuesday the Justice Department had opened an investigation into the company’s recent accounting practices, alongside an investigation that has been under way at the Securities and Exchange Commission. GE also said the SEC had expanded the scope of its inquiry.
Both the Justice Department and SEC are investigating a
$22 billion charge the company booked in the third quarter tied to acquisitions in GE’s power unit, as well as a $6 billion charge in the first quarter for a shortfall in insurance reserves, GE’s finance chief Jamie Miller told investors on a conference call Tuesday.
GE reported a net loss of
$22.8 billion in the third quarter because of the $22 billion charge, highlighting the depths of the problems facing the company. Mr. Culp took over on Oct. 1 after GE ousted its CEO and warned it would miss its cash flow and earnings goals for the year. GE didn’t provide updated financial projections Tuesday but executives cautioned that GE would significantly miss its previous targets.
Investors had braced for another reduction in the company’s once-reliable dividend. The company’s new quarterly dividend will be 1 cent a share, down from 12 cents. The move will save the
company about $3.9 billion a year, and marks a reversal for a company that once was one of the most generous dividend payers.
GE, once a powerful industrial giant, has struggled over the past year with declining sales and profits that have forced the conglomerate to break itself apart and bring in an outsider CEO.
But while plans to sell or spin off three major units are under way, GE’s core power business has continued to deteriorate.
On Tuesday’s conference call, Mr. Culp said the overall strategy set in June “is the right plan going forward” and GE had no plans to sell shares to raise additional capital. However, he said dramatic changes were needed in the power business, which Mr. Culp said he plans to separate into two units. “Everything is on the table at power,” he said.
Revenue in the power unit tumbled 33% in the latest quarter to $5.74 billion and the unit swung to an operating loss. Overall, GE said revenue dropped 4% to $29.57 billion in the third quarter,
as growth in its aviation and energy units offset some of power’s decline.
Excluding charges, GE reported earnings of 14 cents a shares. On that basis, Wall Street was expecting adjusted earnings of 20 cents a share with revenue of $29.92 billion, according to Thomson Reuters.
When it switched CEOs earlier this month, GE warned it would take an accounting charge of up to $23 billion for previous acquisitions in the power business, which makes turbines that generate electricity at power plants. The century-old business has suffered from deep losses amid a global drop in demand for powergenerating equipment.
The power division, which had been GE’s biggest in terms of revenue, has been at the center of GE’s financial and operational woes. The unit has cut thousands of jobs to adjust to the market, but GE has said it will take years to get the division back on track. GE said Tuesday it would cut additional costs by consolidating corporate functions at the power unit.
Ms. Miller said the company would “significantly miss” its financial targets for 2018, without providing new forecasts. She warned problems in the power business would persist longer than expected and that GE may need to provide additional support to its GE Capital arm.
Earlier this month, GE had warned it would miss its forecast for adjusted 2018 earnings of around $1 a share. Before Tuesday’s report, analysts had lowered their adjusted per-share earnings targets, pushing the consensus down to 88 cents, according to a Thomson Reuters. Until last fall, GE had targeted 2018 adjusted earnings of $2 a share.
GE slashed its dividend as the amount of cash the company generates from its power and other industrial businesses has dried up. In the first nine months of the year, the industrial business generated a negative $335 million in adjusted cash flow. Previously, GE had projected about $6 billion in cash flow for the year, down from $9.7 billion last year and $11.6 billion in 2016.
GE didn’t update the company’s cash flow or financial targets for the full year. Mr. Culp said the company would provide an update to investors in early 2019.
GE said plans to split the power generating division into two units, one for its natural gas turbines and related services, and another unit including steam and nuclear power, along with equipment and services for distributing electricity.
Last month, GE disclosed a flaw in its newest power-plant turbines after a key part failed and forced utility customer Exelon Corp. to shut down two Texas plants. GE has been making repairs to the fleet of turbines.
The aviation business, which produces jet engines, remains the brightest spot amid healthy demand for its latest model from companies like Boeing Co. and Airbus. GE said the unit’s revenue jumped 12% to $7.4 billion and segment profits rose 25%. Equipment orders surged 35% from a year ago.
GE said it remains focused on “shrinking and deleveraging GE Capital,” the financial services arm of the company. GE has significantly pared back the division in recent years, but it has still been a source of problems this year, including the need to boost insurance reserves on its insurance portfolio by $15 billion.
The Boston-based company has already announced plans to sell its transportation business, which makes locomotives, and spin off its health care unit, which makes MRI machines and hospital equipment. It also said it planned to sell down its 63% stake in Baker Hughes, an oilfield services provider.
In the third quarter, revenue and profits at the health care and transportation units were roughly flat from a year ago. GE said Tuesday it expects to complete the sale of its transportation business to Wabtec Corp. in early 2019 but could complete the sale sooner. It didn’t provide an update on plans for the stake in Baker Hughes.
GE shares rose 4 cents to $11.20 in premarket trading Tuesday. The stock closed lower Monday at $11.16, down almost 50% in the last 12 months. GE was kicked out of the Dow Jones Industrial Average earlier this year.