GE's Chief Warns of No Quick Fix -- WSJ
May 24 2018 - 3:02AM
Dow Jones News
By Thomas Gryta
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 24, 2018).
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. He also
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 the things we do with the portfolio," he said. GE
cut its dividend in half in November, only the second reduction of
the payout since the Great Depression.
The comments disappointed Wall Street, which pushed GE's shares
down 7.3% in Wednesday trading to $14.18.
Investors have waited since last summer for answers on the
company's direction, including a possible breakup. Mr. Flannery
didn't commit Wednesday to a timeline for sharing his ultimate road
map. People familiar with the matter said GE plans to unveil its
strategy in late June.
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. Much of his message on Wednesday
was a reiteration of prior declarations to simplify, reduce the
financial services business and focus on cash generation.
The CEO highlighted that GE expects flat profits in its 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'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.
He gave some insight into 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, the financial services
business, 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 24, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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