New York: General Electric Co’s new boss has barely uttered a word in public during his first two months on the job. But he’s already sending signals that his tenure could bring one of the most sweeping makeovers in the company’s 125-year history.
Chief executive officer John Flannery is seeking deep cost reductions, weighing portfolio changes and reshaping management from top to bottom. It’s an effort to stem the problems that have turned the blue-chip stock into the worst performer this year on the Dow Jones Industrial Average. A dividend cut is also be a possibility, according to Vertical Research Partners.
Flannery, who last week also took on the chairman title, may be poised to slash earnings expectations when he presents plans to revitalise the beleaguered manufacturer at a meeting scheduled for November 13. As GE contends with weak cash flows and ongoing issues in the power-generation and oil markets, the company may have no choice but to reduce shareholder payouts.
“If earnings and cash flow are going even lower than we thought, the dividend clearly should be cut,” analyst Jeff Sprague of Vertical Research said in the October 6 note. “GE could end up in better place once the dust settles but investors should steer clear until we learn more. That better place could be with a starting point much lower for the stock price.”
A GE representative said the company declined to comment.
Cost cuts
Flannery has been meeting with investors and has said he will consider all options to turn the company around. He has slashed services such as corporate jets and company cars as part of an existing plan to eliminate $2 billion (Dh7.34 billion) of costs through 2018. Analysts believe he may reduce expenses by an even greater amount.
The face of GE changed dramatically last week as several of the company’s most well-known executives, including chief financial officer Jeff Bornstein, stepped down. Vice-chairs Beth Comstock, GE’s top female executive and a leading figure in its embrace of Silicon Valley, and John Rice, the primary international officer, also said they would retire. The departures, announced late Friday, came shortly after Jeffrey Immelt stepped down as chairman earlier than planned.
Jamie Miller, who heads GE Transportation, was appointed CFO.
Bornstein’s resignation comes after he was passed over to succeed Immelt. When Flannery’s appointment was announced, Bornstein, 51, was promoted to vice-chair and the company said he would work closely with the new boss.
The outgoing CFO was regarded among investors and analysts as a knowledgeable and plain-spoken partner to Immelt’s big-vision CEO. Bornstein, who joined GE in 1989 and held a number of finance-oriented roles, was considered a major driver of GE’s plan to shed about $200 billion of lending businesses and refocus on industrial manufacturing.
Faded star
But Bornstein’s star faded in recent months as he shouldered some of the blame for GE’s cash-flow issues. The Boston-based company has been under pressure from activist investor Trian Fund Management for its recent performance, including a 23 per cent decline in the stock this year.
The executive changes “serve to build expectations that game-changing strategic moves will be unveiled” at the November 13 meeting, wrote Deane Dray, an analyst with RBC Capital Markets. Analysts expect profit this year of $1.54 a share, according to the average of estimates compiled by Bloomberg, less than GE’s forecast of at least $1.60. While GE has discussed earnings of $2 a share in 2018, analysts are predicting $1.67 on average.
A dividend cut may be necessary since the existing payout “consumes all or most” of GE’s industrial free cash flow for the foreseeable future, Sprague said. GE has said maintaining the payout is a top priority.
The company cut its dividend in 2009 during the financial crisis, the first such move for GE since the Great Depression. The company pays an annual dividend of 96 cents, for a yield of 3.9 per cent.
