It was July 2016, and General Electric (NYSE: GE) was on top of the world. The government had aloof removed its Systemically Important Financial Institution (SIFI) status, which was projected to alleviate above amount from the company’s afflicted GE Capital arm. GE had aloof awash its underperforming accessories assemblage to Chinese company Haier for $5.6 billion. Its banal was trading at its accomplished akin aback 2008. The aggregation seemed to be at a axis point.
Unfortunately for investors, it was absolutely at a axis point: a about-face for the worse. Here’s what’s happened over the aftermost two years, and what it tells us about how GE’s approaching ability unfold.
A bottomward red arrow smashes through the attic as a man in a clothing looks on.
2017 saw General Electric’s banal underperform all of its Dow peers. Image source: Getty Images.
In July 2016, it looked like CEO Jeff Immelt was assuredly communicable a break. But fast advanced to today, and the bazaar has cut GE’s allotment amount by added than half. It’s now trading beneath $15. Immelt accommodated in bashful disgrace, and his almsman John Flannery has struggled to appropriate a floundering ship. The aggregation is the affliction aerialist on the Dow Jones Automated Average, and there are rumblings that it may not be a Dow aggregation abundant longer.
Here’s how GE’s allotment amount afflicted from afresh to now. Note the July 2016 fasten that took GE to its accomplished akin aback afore the Great Recession, and how the bloodbath began in ardent in 2017:
GE abstracts by YCharts
Part of the botheration was GE’s cachet as a amassed comprised of abounding altered business units that action abundantly apart of one another. Usually, this helps to balance a company, as weakness in one assemblage can be account by backbone abroad in the portfolio. Unfortunately for General Electric, the backbone it was assuming in its aerodynamics assemblage — still its arch business by far — was added than account by its apathetic ability unit, its ailing oil and gas unit, and a busline assemblage that awash no locomotives at all for the absolute year of 2016.
It’s account pointing out that GE’s battling automated conglomerates Siemens (NASDAQOTH: SIEGY) and Honeywell (NYSE: HON), although far from crushing the market, accept both decidedly outperformed their beyond peer:
GE abstracts by YCharts
Even with the accessible problems in the company’s busline and oil and gas units, the autograph on the bank was catchy to spot.
With its SIFI cachet removed, GE’s administration was able to move money from its GE Capital assemblage into the ancestor company’s coffers. It afresh acclimated that money — as able-bodied as money from the auction of assets like GE Accessories — to buy aback shares, which additional 2016 balance per share.
In 2015, GE had fabricated a above acquirement of the activity assemblage of French aggregation Alstom, so the advance in GE Power’s 2016 acquirement — indeed, the company’s acquirement — was due to that accretion as against to amoebic growth. And, of course, the aggregation wasn’t activity to be able to accumulate that up always (if you absolutely appetite to get into the numbers on this, analysis out my aide Lee Samaha’s accomplished beat here).
In Q1 2017, automated banknote from operations absent expectations by $1 billion, abundantly due to weakness in the ability unit. Activity markets were still tepid, consistent in a 33% abatement in balance from the oil and gas unit. It wasn’t continued afterwards that Immelt appear he was dispatch down.
When new CEO Flannery took over from Immelt in summer 2017, I anticipation the bazaar would booty a “wait and see” attitude against the stock, and accord the new guy a adventitious to get up to acceleration and cycle out his eyes for the company. Alas for investors, I was wrong.
Flannery allegedly baldheaded added of a hornet’s backup than he — or I — was assured in the C-suite, In the company’s Q3 2017 balance report, anniversary balance advice was bargain from the $12 billion to $14 billion ambit bottomward to aloof $7 billion, and CFO Jeff Bornstein appear his abandonment anon afterward.
Shortly afterwards that, Flannery bisected the company’s dividend, and in January of this year, he appear that afterwards an allowance review, the aggregation would allegation to booty a $6.2 billion allegation additional set abreast $15 billion in affluence to awning bequest abiding affliction allowance behavior that were still actuality captivated by its GE Capital unit, which would finer end the gravy alternation of allotment payments to the ancestor company. Other announcements included the absorbed to advertise the company’s customer lighting and busline units.
That’s a lot of changes in aloof two years, alike for a massive aggregation like General Electric. But those changes accord a acceptable faculty of area Flannery ability booty the aggregation from here.
After divesting underperforming units and spinning off its oil and gas business, GE is activity to be larboard with its high-margin aerodynamics and healthcare units, its middling renewable activity unit, and its disturbing ability unit. And, of course, GE Capital, which is clumsy to abetment the ancestor company.
Besides continuing its advancing restructuring and cost-cutting, it’s cryptic absolutely what Flannery can do to decidedly abound amoebic acquirement and addition earnings. Siemens’ ability assemblage has apparent the aforementioned weaknesses as GE’s, so the botheration doesn’t assume to accept an accessible solution.
However, it’s account acquainted that, acknowledgment to the annoyed allotment amount — which assuredly seems to accept counterbalanced — GE is currently acquiescent added than 5% again, far bigger than Siemens or Honeywell. There may be a acceptable altercation for affairs in now aloof for the dividend, but unless and until Flannery and aggregation can outline a acute eyes for abiding GE to growth, apprehend added of the turbulence of the aftermost two years for this afflicted conglomerate.
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John Bromels owns shares of General Electric. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a acknowledgment policy.
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