GE Chief Gives Cautious Outlook for Power Business
May 23 2018 - 2:28PM
Dow Jones News
By Thomas Gryta
General Electric Co. boss John Flannery warned investors
Wednesday that the company's big power business faces years of
pressure and reminded them that major changes at the conglomerate
will take some time.
"This is not going to be a quick fix," the CEO said in a
presentation at the Electric Products Group conference where he
highlighted that GE expects flat profits in power business this
year and weak demand for turbines in 2019 and 2020. The business is
GE's biggest in terms of revenue and has been a drag on
results.
Mr. Flannery made it clear that he continues to consider options
for the portfolio of businesses but much of his message was a
reiteration of prior declarations to simplify, shrink the financial
business and focus on cash generation. The comments disappointed
Wall Street, which pushed GE's shares down 7% in afternoon trading
to $14.19.
Mr. Flannery's first appearance at the EPG conference comes a
year after former boss Jeff Immelt took the stage, just three weeks
prior to his retirement announcement. Mr. Immelt backed a 2018
earnings projection of $2 a share that many thought wasn't
realistic and expressed frustration with the stock price. The 2018
profit target is now about half what it was, and GE's share price
is now down about 50% from a year ago.
"We are running things in a very, very different way going
forward," Mr. Flannery, who took over in August, said
Wednesday.
Mr. Flannery made his first major portfolio move this week in
agreeing to spin off GE's transportation business but didn't
provide details on future moves in the portfolio. He declined to
commit to the current dividend for 2019, implying that it would be
adjusted with major portfolio moves.
"It is ultimately a function of the free cash flow of the
company and that is ultimately a function of our operating
performance of the assets and the things we do with the portfolio,"
he said. GE cut it dividend in half in November, only the second
reduction of the payout since the Great Depression.
Mr. Flannery promised a more disciplined financial management,
an area that has gotten GE in trouble in the past. He wants to
shrink the overall size of GE Capital and is working on reducing
the risk around long-term care insurance obligations that recently
led to a $15 billion shortfall in reserves.
"We are thinking very much of building a cushion here," he said.
"Running the company with higher levels of cash, reducing the
reliance on short-term funding, making contributions to the pension
fund."
Concerning the culture of the company, Mr. Flannery talked of
moving decision-making from headquarters to the divisions. He said
the shifts aren't related to recent events but he formed ideas for
change in the past 10 years that "perhaps a different model would
serve us better."
He also countered criticism that restructuring GE is taking too
long. He referred to the complexity of the transportation deal and
needing to take time to make sure it works best for the company and
investors. He scoffed at suggestions that he simply sell the
operations for cash months ago.
"If we listened to those demons, I think we would have done
something that you guys regretted," he said. "Being deliberate and
then moving when things make sense -- as opposed to moving just
because somebody wants to -- is just my style."
Write to Thomas Gryta at thomas.gryta@wsj.com
(END) Dow Jones Newswires
May 23, 2018 14:13 ET (18:13 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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