by Richard Clough
General Electric’s new boss is dramatically reshaping the company and slashing the dividend as he looks to pull the manufacturing company out of one of the deepest slumps in its 125-year history. The moves failed to win over investors.
Chief executive John Flannery plans to narrow GE’s focus around power, aviation and healthcare equipment while exiting businesses such as lighting and locomotives that have defined the company for decades.
He is also trimming the size of the board, revising the compensation program and chopping the quarterly dividend in half — only the second cut since the Great Depression. The sweeping changes underscore the severity of the challenges facing the new CEO, who is grappling with a stock that has lost $100bn (€85.7bn) in market value this year.
Plagued by poor cashflow amid slumping markets in power generation and oil-field equipment, GE is by far the biggest loser on the Dow Jones Industrial Average this year.
“Whether investors will consider these actions sufficient to form a bottom for the stock remains to be seen, but there is no doubt that the plan outlined today marks a new era for GE,” said Deane Dray, an analyst at RBC Capital Markets. “That said, does it go far enough?” GE shares have now fallen by over 35% this year.
Flannery already has made changes to top management, sought deep cost cuts and welcomed a representative of activist investor Trian Fund Management to GE’s board. Over the next two years, GE will explore options to exit its majority stake in Baker Hughes, a provider of oil-field equipment and services.
“The GE of the future is going to be a more focused industrial company. Soon we’re going to be proud of the performance,” Flannery, who took over in August from Jeffrey Immelt, said in a presentation.
Flannery, who previously ran GE’s unit manufacturing medical scanners and other health equipment, said last month that the company would divest at least $20bn (€17bn) of businesses.
The moves follow a broad portfolio reshaping in recent years as Immelt sold most of GE’s finance and consumer operations. Still, the latest steps will keep most of the current company intact and stop short of the full-scale breakup some analysts have recently called for.
Earnings next year will be $1 to $1.07 a share, GE said. That represents a significant decline from the $2 target that management has been discussing for several years.