Investors laud progress of GE CEO in exiting ‘abyss’
NEW YORK General Electric Co. is having a good earnings day. Yes, you read that right.
Investors applauded as the beleaguered manufacturer reported solid earnings, reaffirmed its profit forecast and avoided the kind of nasty surprises that marred results in recent quarters. Chief executive John Flannery expressed optimism that GE would exceed its US$2 billion cost-cutting goal and said he’s exploring new ways to run the company.
“I’m excited about the path we’re on,” Flannery said Friday on a conference call with analysts to discuss GE’s earnings. “Today is our first report card for 2018 and we see signs of progress.”
The steady outlook cheered investors, who have been reeling as GE stumbles through one the deepest slumps in its 126-year history. The latest results suggest the maker of jet engines and gas turbines is taking “baby steps out of the abyss,” said Scott Davis, an analyst at Melius Research.
“After eight months on the job, CEO Flannery seems to be getting his arms around GE,” Davis said in a note to clients. “It’s the first time that GE spoke in more detail about fixing the GE culture — a refocus on lean manufacturing and compensating employees for the quality of a result (i.e. cash flow) and how it flows through” to overall earnings.
The shares rose almost four per cent in morning trading in New York, after jumping as much as 7.6 per cent for the biggest intraday advance since April 2015. It closed at US$14.54, up 3.9 per cent.
Flannery said he sees “green shoots” at GE, reprising former Federal Reserve chairman Ben Bernanke’s phrase as the U.S. was emerging from the severe recession in 2009. Looking to the longer term, Flannery said he summoned top leaders to the company’s leadership institute in Crotonville, N.Y., to discuss “a new GE operating system.”
The revamped structure will give individual business units more autonomy, he said. Corporate operations, meanwhile, will narrow focus on “strategy, governance, capital allocation and talent.” The broad review of GE’s portfolio remains under way, he said.
The first quarter was rocky for GE and its shareholders. In January the Boston-based manufacturer disclosed troubles in a portfolio of old insurance policies. About a week later, GE revealed it was under investigation by the U.S. Securities and Exchange Commission over the insurance issue and accounting for unrelated service contracts.
But the results exceeded expectations. Adjusted profit was US16 cents a share in the quarter,