Struggles at GE
The conglomerate reports a quarterly loss and discloses an SEC accounting inquiry.
General Electric reported quarterly results on Wednesday that illustrated how far it has fallen, and the steep hill the company — once a titan of American industry — must climb to turn itself around.
There were no big surprises; those had mostly come earlier.
But in a conference call with analysts, GE disclosed that the Securities and Exchange Commission had opened an investigation into the company’s handling of its insurance obligations and how it accounted for certain services contracts. The inquiry was in its “very early stages” and GE was “cooperating fully,” said Jamie Miller, the company’s chief financial officer.
Last week, GE made a startling announcement that it would take a $6.2 billion charge in the fourth quarter and set aside $15 billion over seven years to pay for obligations held by its finance unit, mainly on longterm care insurance policies.
Last fall, shortly after taking over as chief executive, John Flannery told investors that GE’s big electricity-generation division had badly misjudged the market and produced too many power turbines, warning that it would take a year or more to fix the business.
At the time, GE sharply reduced its earnings forecast and cut its dividend by half, only its second payout cut since the Great Depression.
Throughout the conference call on Wednesday, Flannery emphasized that despite its current challenges, GE had industrial businesses that were fundamentally strong.
“We have a lot to work on,” he said, “but we have a lot to work with.”
Overall, GE reported a net loss of $9.8 billion for the last three months of the year. That included the big charge for insurance obligations and a separate $3.5 billion charge related to the tax law signed at the end of 2017. Many other companies have taken similar charges in connection with the tax overhaul.
Sales in GE’s power unit fell by 15 percent, to $9.4 billion in the quarter. Its operating profit of just $260 million was down 88 percent from nearly $2.2 billion in the same period a year ago. Last month, the company announced it would eliminate 12,000 jobs in that struggling business.
Still, the company’s aviation unit, a leading manufacturer of jet engines, and its health care business, which includes life sciences and medical-imaging equipment, delivered strong profits.
Flannery, who took over in August, told investors last November that aviation, health care and power were GE’s three core businesses. That equates to two thriving divisions and one in need of fixing, although with a strong franchise in the powergeneration business. GE’s lighting and railway locomotive divisions are already up for sale.
Yet last week, after the surprising setback because of insurance claims at GE Capital, Flannery suggested that even one of the three core businesses could be a candidate for a spinoff to generate returns for shareholders.
The company’s share price has dropped by 44 percent over the past year, while the S&P 500 index has climbed 25 percent.