Daily Management Review

As Profit Falls, $20 Billion Asset Sales And 'Sweeping Change' Vowed By GE


As Profit Falls, $20 Billion Asset Sales And 'Sweeping Change' Vowed By GE
For failing to deliver profits after what he called “horrible” results in the third quarter, more than $20 billion worth of assets would be shed and executives would be held accountable, vowed General Electric Co’s new chief executive.
Sending shares down as much as 6 percent early on Friday, GE badly missed Wall Street expectations and slashed its full-year forecast.
The 125-year-old maker of power plants, jet engines, medical devices and other industrial equipment have delivered more than a decade of frustration at poor returns and investors are pushing for big change in the company.
The stock has posted a negative return even after reinvesting its juicy dividends and is down more than 40 percent since former CEO Jeff Immelt took the helm in September 2001.
Reduction of the complexity of GE’s portfolio, demanding better performance from the businesses and changing GE’s culture to hold managers more accountable are the measures that were promised by Flannery, who took over as CEO on Aug. 1.
Flannery said on a conference call with analysts that GE’s good businesses are being held back by others that “drain investment and management resources without the prospect for a substantial reward.”
“We will have a simpler, more focused portfolio” in coming months, he said. “We are driving sweeping change.”
There were no details provided by Flannery on the chopping block. The details are to be unveiled on Nov. 13. Shedding most of GE Capital, plastics and NBCUniversal were the measures that Immelt took to shake up GE’s portfolio. Flannery voiced support for both 3-D printing and a digital-industrial unit where Immelt has also poured money into.
GE had to balance paying investors with investing to build its businesses but the company would do what it could to sustain its dividend, Flannery also suggested.
What pieces GE could do without were very clear as idea for analysts. “GE will likely sell transportation, lighting and about anything else that isn’t nailed down and very core,” analyst Scott Davis at Melius Research wrote in a note on Friday.
Outgoing Chief Financial Officer Jeff Bornstein took the blame for the poor results during the conference call, his last as CFO as proof of GE’s new approach to performance.
“Accountability has to start with me,” he said. “We are not living up to our own standards or those of investors, and the buck stops with me.”
Flannery voiced eagerness to shake up GE’s highest levels and GE’s poor third-quarter results showed the depth of problems confronting Flannery. shedding some of the 18 directors was “being examined”, he said and added that “robust dialogue” would be sparked over the recent inclusion into the company board of Ed Garden, a founding partner at activist investor Trian Fund Management.
The main causes of the profit decline, as attributed by the company, were the higher-than-expected restructuring costs, goodwill impairment ad and weak performance in GE’s power and oil and gas businesses.
There was a fall of 51 percent in the quarter in the profit at the GE power business, which makes power plants and related equipment.