US Industrial Giant, GE’s Story In A Snapshot

General Energy

General Electric Company’s (NYSE: GE) stock surged over 7.1% on October 1, 2018 post the firm’s bold move of removing John Flannery, who has been the group’s chief executive for just 14 months.  General Electric appointed Larry Culp, as the CEO and chairman. GE undertook several initiatives to revamp its business and also dispose non-core business. From 2000, the firm spent over $1.8 billion for advice on acquisitions and disposals and more than $3bn to bond underwriters. Moreover, GE’s $US10.3 billion acquisition of the power business of French Group Alstom in 2015 led to the power problems which enhanced their exposure to gas, coal and nuclear power during the times when they were actually trying to control costs.

GE hinted for a weaker than expected performance going forward, and reported that they tried to minimize the impact of their $32 billion of their currency by putting this as a non-cash item. This move from GE is a major hit to Australian executives. This impairment is commonly seen in Australia, and is an indication of past mistakes made – of capital mis-allocated, and of bonuses paid wherein the resources were being misused. Australian companies’ investors should learn from the GE’s move. 

GE disposed $20 billion worth assets while also cutting the size of GE Capital with planned asset reductions of $25 billion over the next two years while it already achieved $1.1 billion in cost out through the first six months, and is on track to exceed their goal of $2 billion. The firm also reported a change in their operating model enabling them $500 million plus at Corporate by 2020.

General Electric appointed Larry Culp who is the first outsider in its 126-year history wherein only 14 CEOs have been serving. On the other hand, GE made John Flannery accountable for their current situation during the times when Shareholders were looking for someone to blame, but the problems at General Electric are structural, while investors should not see non-cash items as non-events.

The group has been trying to make some changes in the above direction in order to mitigate challenges faced with regards to the structure of the group. Meanwhile, S&P has downgraded the credit ratings for GE and GE Capital; and other ratings firms, Moody’s and Fitch also indicated to be in this direction given the high leverage while GE’s cash flows are declining with impairment from group’s power division. Despite this, the stock was up 1.9% as of October 02, 2018.

This story is a must to watch for a group that looked fundamentally strong earlier.

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