GE Leaves Investors in Limbo -- 4th Update
July 21 2017 - 2:25PM
Dow Jones News
By Thomas Gryta
General Electric Co. told investors that profits are under
pressure and they would have to wait several months to get a better
sense of its business, sending shares to their lowest levels in
more than a year.
GE improved its cash flow and ramped up cost-cutting efforts --
two areas of investor focus -- in Chief Executive Jeff Immelt's
last quarter at the helm. But the Boston-based conglomerate
tempered profit expectations for the current year and said
investors would have to wait until mid-November for Mr. Immelt's
successor to discuss the outlook for 2018.
Shares fell 2.8% to $25.94 in afternoon Friday trading, leaving
the price about 18% below where it started the year.
GE is under increasing pressure to show that its pivot away from
financial services and renewed focus on making jet engines, power
turbines and other industrial businesses would be good for
investors. Mr. Immelt will step down at the end of the month after
16 years and be succeeded by health-care unit chief John
Flannery.
Mr. Flannery is meeting with investors and visiting the business
units of the roughly 300,000-person company. On a conference call
Friday, one analyst asked if GE would be in "limbo" until November.
Mr. Flannery said the financial framework for 2017 is set and he is
"not worried that we're going to be, you know, dead in the water in
the meantime."
Jeffrey Bornstein, GE's chief financial officer, defended the
timeline in an interview and said the company would have to "play
through" any uncertainty created by a review that includes "testing
everything we believe."
"The notion that [Mr. Flannery] is going to get his arms around
this in a month is a fallacy," Mr. Bornstein said in an interview.
"I don't think asking for four or five months to do this is asking
a lot."
On Friday, GE backed its prior guidance of 2017 earnings of
$1.60 to $1.70 a share, and organic sales growth of 3% to 5%, but
it warned that profit would be on the weak side. "Given our outlook
on oil and gas and power, we are trending to the bottom end of the
range," Mr. Bornstein said on the conference call.
Analysts are doubtful that GE will reach a long-held goal of
delivering $2 a share in profit in 2018, but the company said an
updated target wouldn't come until after Mr. Flannery's review.
Meanwhile, smaller industrial conglomerate Honeywell
International Inc. reported a stronger quarterly profit Friday and
raised the low end of its 2017 earnings guidance. The company is
also conducting a review of its portfolio under its new CEO, Darius
Adamczyk, which it expects to complete in late September or early
October.
"We are very conscious of not letting this slow us down," said
Chief Financial Officer Tom Szlosek in an interview. "We think we
do a good job of keeping our businesses out of it."
Strength in its aerospace division as well as the home and
building-technologies business helped Honeywell's latest results.
The company's profit rose 6% to $1.4 billion in the second quarter,
and revenue increased about 1% to $10.08 billion.
Honeywell shares gained 1.2% to $136.54 Friday afternoon,
leaving it up 18% on the year.
Both GE and Honeywell are facing pressure from activist
investors. GE pledged to boost its cost-cutting program earlier
this year after discussions with Trian Fund Management, which has
been frustrated by missed profit goals. Third Point LLC has called
on Honeywell to explore selling or splitting off its aerospace
business.
On Friday, GE said it cut $593 million in industrial costs in
the second quarter and is on track to meet or beat its $1 billion
savings goal by the end of the year. It has eliminated $670 million
in spending so far this year.
Despite re-examining its spending, GE said it won't consider
reducing its dividend payout, which Mr. Bornstein called "the
single most important capital allocation item that we have."
Cash flow in GE's industrial segment was a positive $1.5 billion
after a shocking first-quarter shortfall of $1.6 billion. The
company backed its full-year target of $12 billion to $14 billion
but said it would also be at the low end of that range.
In all, GE's second-quarter earnings fell less than expected.
Much of the drop came from a year-ago boost from the sale of its
home-appliances business. The company reported a profit of $1.19
billion, or 15 cents a share, down from $2.76 billion, or 36 cents
a share, a year earlier.
Revenue fell 12% to $29.56 billion.
Imani Moise contributed to this article.
Write to Thomas Gryta at thomas.gryta@wsj.com
(END) Dow Jones Newswires
July 21, 2017 14:10 ET (18:10 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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