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General Electric Faces Ire of Investors and Long Road of Restructuring

Nov. 15, 2017
General Electric, Boston, started the week by facing the wrath of investors disappointed with its decision to cut its quarterly dividend in half and skeptical of the turnaround plans offered by new Chairman and CEO John Flannery.

General Electric, Boston, started the week by facing the wrath of investors disappointed with its decision to cut its quarterly dividend in half and skeptical of the turnaround plans offered by new CEO John Flannery. GE’s stock price fell below $18 early in the week, in the steepest decline it has seen since the recession in 2009.

GE announced that it will pay a dividend of 12 cents per share instead of 24 cents and lowered its earnings forecast for 2018. The company’s results were affected most by sluggish performance in oil-field services and power generation markets.

The company announced a few weeks ago that it will sell of $20 billion in assets and find $2 billion in cost savings to change the company’s direction. Among businesses slated for sale are GE Lighting (already announced in June) and transportation, including locomotive manufacturing. The company may also look at its connected lighting and smart cities business under Current, Powered by GE, and reconsider its 62.5% stake in Baker Hughes, which GE bought only months ago. Flannery said he plans to focus GE on three businesses — power generation, aircraft engines and health-care equipment — and will exit others.

With ABB already buying GE Industrial Solutions, with GE Lighting on the block and Current up for review, what’s left of General Electric for the electrical industry to care about? The company’s Predix industrial intelligence platform may become its primary area of involvement in the industry. It will also continue to pursue renewable energy systems as part of its Power business strategy. Flannery said the company would not retreat from the idea of Predix, which it wants to make the leading platform for industrial IoT.

Investment analysts have been revising their expectations for the company’s future performance. Jeff Sprague of Vertical Research Partners changed his price expectation to $18 and expressed concern about the conglomerate’s ability to grow from its remaining businesses.

“We thought GE would set a much larger multi-year cost reduction target. Deflationary pressure on the selling side and inflationary pressures on the cost side of GE’s businesses will eat up a significant amount of gross restructuring actions. In fact, GE has spent almost $12 billion on ‘restructuring and other’ from 2014-2017, with no discernible benefit to its profitability.”