{"id":52294,"date":"2017-11-14T07:04:25","date_gmt":"2017-11-14T07:04:25","guid":{"rendered":"https:\/\/www.biphoo.com\/bipnews\/?p=52294"},"modified":"2017-11-14T07:04:25","modified_gmt":"2017-11-14T07:04:25","slug":"shrinking-ge-rattles-investors-shares-hit-5-year-low","status":"publish","type":"post","link":"https:\/\/www.biphoo.com\/bipnews\/business\/shrinking-ge-rattles-investors-shares-hit-5-year-low.html","title":{"rendered":"Shrinking GE rattles investors shares hit 5 year low"},"content":{"rendered":"

Shrinking GE rattles investors shares hit 5 year low<\/span><\/strong><\/span><\/h2>\n

Shrinking GE rattles investors shares hit 5-year low: General Electric Co\u2019s (GE.N) new Chief Executive John Flannery on Monday outlined steps that will turn the biggest U.S. industrial conglomerate into a smaller, more focused company, surprising some investors who sold the company\u2019s shares to a five-year low.<\/span><\/p>\n

Flannery\u2019s plan to shrink GE\u2019s multi-industry array of businesses was a reversal of the deal-driven empire building of his predecessors, Jeff Immelt and Jack Welch, and potentially a milestone in the decline of the conglomerate as a business strategy.<\/span><\/p>\n

Other companies that once emulated the GE model of spreading bets among diverse industries are now unwinding their portfolios as well, something Immelt also did throughout his 16 years as CEO, even as he made acquisitions.<\/span><\/p>\n

Flannery said he will pare GE down to three core businesses: power, aviation and healthcare. He will keep Immelt\u2019s strategy of building software to complement GE\u2019s machinery, albeit with a narrower focus and reduced budget.<\/span><\/p>\n

For investors, Flannery\u2019s decision to cut both the dividend and the 2018 earnings forecast by half added up to a whole that was less than they judged GE be worth last week.<\/span><\/p>\n

GE shares fell to their lowest level in more than five years as investors worried the years-long overhaul would not pare down enough expenses or generate as much cash as they hoped. They closed off the day\u2019s lows, down 7.2 percent to $19.02.<\/span><\/p>\n

\u201cThey need to cut more cost,\u201d said Scott Davis, an analyst at Melius Research. \u201cGE is still a bloated company with duplicate costs up and down the organization.\u201d<\/span><\/p>\n

GE stock has effectively been dead money since September 2001, when Immelt took over, posting a negative total return even after reinvesting its juicy dividends. Once the most valuable U.S. publicly traded company, GE now has a market value of $168 billion, less than a fifth of Apple Inc (AAPL.O).<\/span><\/p>\n

\u201dYou have pessimism around its portfolio of businesses mixed with a pretty harsh cut in the dividend,\u201c said John Augustine, chief investment officer at Huntington Private Bank. \u201dIt took them years to get into this mess and it will take them several years to right the ship and get back into a stronger position.\u201d<\/span><\/p>\n

\u2018SOUL OF THE COMPANY\u2019<\/span><\/p>\n

Flannery, who took over as CEO on Aug. 1, said he was \u201clooking for the soul of the company again\u201d and would focus on \u201crestoring the oxygen of cash and earnings to the company.\u201d<\/span><\/p>\n

He will cut its board to 12 from 18 members, and bring on three new directors early next year.<\/span><\/p>\n

GE said it already has shed 25 percent of its corporate staff, meaning 1,500 jobs around the world, including some at its Boston headquarters. It is aiming to reduce overhead cost by $2 billion next year, half of that at its troubled power unit that sells electrical generation equipment.<\/span><\/p>\n

The transition includes GE getting rid of at least $20 billion of assets through sales, spin-offs or other means. GE will jettison businesses with \u201ca very dispassionate eye,\u201d Flannery said, keeping only units that offer growth, a leading market position and a large installed base.<\/span><\/p>\n

GE said it would exit its lighting, transportation, industrial solutions and electrical grid businesses, all of which were widely expected, closing factories around the globe. But it was vague about other disposals.<\/span><\/p>\n

It plans to get rid of its 62.5-percent stake in oilfield services company Baker Hughes (BHGE.N), only months after making the multi-billion dollar investment. Baker Hughes shares lost 3.2 percent.<\/span><\/p>\n

Flannery offered no quick fixes for investors. He said power, one of the businesses GE would focus on, was \u201cchallenged,\u201d but could be turned around in one to two years.<\/span><\/p>\n

GE\u2019s Digital unit, on which Immelt bet billions of dollars, would focus on selling apps to customers in its core businesses, Flannery said. He confirmed that the shift meant sales staff were being let go, as Reuters reported last week.<\/span><\/p>\n

GE also will cut spending on the digital unit to $1.1 billion in 2018 from $1.5 billion in 2017. GE had previously said it would invest $2.1 billion in its digital unit in 2017, but that tally included money not tied to Predix, GE\u2019s industrial-internet platform, GE said.<\/span><\/p>\n

Flannery said there is \u201cno retreat on the idea\u201d of GE providing both applications and the Predix platform to connect industrial equipment to computers that can make machines run better. However, getting one of its key applications to run on Predix could take two more years.<\/span><\/p>\n

Flannery added that some of its healthcare IT business, such as software for imaging and hospital staff scheduling, were still critical to the company and not likely to be divested.<\/span>
\nDIVIDEND CUT<\/span><\/p>\n

The dividend cut, to 48 cents from 96 cents next year, is only the third in the company\u2019s 125-year history and the first not during a broader financial crisis. It is expected to save about $4 billion in cash annually.<\/span><\/p>\n

\u201cThis dividend cut will be a major disappointment to GE\u2019s (roughly 40 percent) retail shareholder base,\u201d said RBC Capital Markets analyst Deane Dray.<\/span><\/p>\n

The cut will be the eighth-biggest dividend cut in history among S&P 500 companies, according to Howard Silverblatt, senior index analyst of S&P Dow Jones Indices. GE also had the biggest cut when it slashed its dividend by $8.87 billion in 2009, Silverblatt said.<\/span><\/p>\n

GE forecast 2018 adjusted earnings of $1 to $1.07 a share, compared with its earlier estimate of $2 per share. Wall Street was expecting $1.16, according to Thomson Reuters I\/B\/E\/S.<\/span><\/p>\n

Industrial free cash flow will total just $6 billion to $7 billion next year, up from an estimated $3 billion in 2017, but far below earlier targets of $12 billion for 2017.<\/span><\/p>\n

GE said the weak power business had largely prompted the dividend cut and lowered earnings forecast. Demand for new power plants will remain slow through 2019, Flannery predicted.<\/span><\/p>\n

But GE also was to blame, he said.<\/span><\/p>\n

\u201cWe did not manage the (power) business well,\u201d he said. \u201cThat\u2019s a fundamental change we need to make and that\u2019s going to take some time. This is not a magic wand.\u201d<\/span><\/p>\n

Source:https:\/\/www.reuters.com\/article\/us-ge-review\/shrinking-ge-rattles-investors-shares-hit-5-year-low-idUSKBN1DD0H3<\/span><\/span><\/p>\n

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