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G.E. Cuts Dividend as New C.E.O. Moves to Streamline an Industrial Giant G.E. Cuts Dividend as New C.E.O. Moves to Streamline an Industrial Giant
(about 3 hours later)
General Electric, the nation’s largest industrial company, cut its dividend on Monday, only the second time it has done so since the Great Depression.General Electric, the nation’s largest industrial company, cut its dividend on Monday, only the second time it has done so since the Great Depression.
The company announced before the start of stock trading that it would reduce its quarterly payout by half, to 12 cents a share from 24 cents a share.The company announced before the start of stock trading that it would reduce its quarterly payout by half, to 12 cents a share from 24 cents a share.
The dividend cut is the most emphatic move that John Flannery, G. E.’s new chief executive, has made since he took over in August. It is part of his broader plan to streamline the company by cutting costs and focusing on fewer businesses.The dividend cut is the most emphatic move that John Flannery, G. E.’s new chief executive, has made since he took over in August. It is part of his broader plan to streamline the company by cutting costs and focusing on fewer businesses.
Last month, when G. E. reported disappointing financial results, Mr. Flannery said that the company would sharpen its focus on fewer industrial businesses and shed at least $20 billion in assets over the next two years. Last month, when G. E. reported disappointing financial results, Mr. Flannery said that the company would shed at least $20 billion in assets over the next two years.
That may just be the start. Mr. Flannery is set to detail his plans for G. E. at a presentation on Monday. Besides Mr. Flannery and the company’s chief financial officer, Jamie Miller, executives from only two of the company’s units — jet engines and electrical power generators — are scheduled to make presentations. There may well be more. Mr. Flannery added detail to his plans for G. E.’s future in a presentation on Monday. The units to be disposed of, he said, would probably include the lighting, and railway locomotives divisions and an industrial solutions business that sells energy-distribution and monitoring equipment. Ten smaller assets, which Mr. Flannery declined to identify, will also be shed.
For his part, according to a report by The Wall Street Journal on Monday, Mr. Flannery is expected to outline plans for three main businesses: aviation, power generation and health care. Mr. Flannery said G. E. was also exploring “exit options” for its 62.5-percent stake in Baker Hughes, a large oil-field equipment maker.
The other businesses currently in G. E.’s portfolio include railway locomotives, lighting and a majority stake in a major oil-field equipment company, Baker Hughes. Besides Mr. Flannery and the company’s chief financial officer, Jamie Miller, executives from only two G. E. units — jet engines and electrical-power generators — made presentations.
G. E. had nearly 300,000 employees worldwide at the end of last year. Selling off several businesses in the next few years would leave the company much smaller, perhaps two-thirds the size it is today. Emphasizing his belief in the vitality of a smaller G. E. — and nodding to products like electric generators, jet engines and medical-imaging equipment — Mr. Flannery accompanied his presentation with slides that said the company would continue to “power the world,” “transport people safely” and “save lives.”
Yet his address also mentioned other businesses he described as “fundamentally strong,” including wind turbines for renewable energy, and the company’s railroad-equipment unit, which is expected to be sold off over the next few years.
G. E. had nearly 300,000 employees worldwide at the end of last year. The impending sales of several businesses and other cost-cutting initiatives will undoubtedly leave it a smaller company.
Yet Mr. Flannery portrayed the path ahead not as one of retreat but as an opportunity, for G. E. workers and for the company’s investors.
“We will produce results that our owners, and that we, will be proud of.” he said. “This is our time to reinvent the company.”
Since becoming chief executive, Mr. Flannery has moved swiftly to roll back spending. He grounded the corporate jet fleet, stretched out the construction schedule for G. E.’s new headquarters in Boston, closed down several international research-and-development labs and trimmed the work force in units like GE Digital, the company’s ambitious effort to become an industrial-software powerhouse.Since becoming chief executive, Mr. Flannery has moved swiftly to roll back spending. He grounded the corporate jet fleet, stretched out the construction schedule for G. E.’s new headquarters in Boston, closed down several international research-and-development labs and trimmed the work force in units like GE Digital, the company’s ambitious effort to become an industrial-software powerhouse.
Mr. Flannery had previously announced an acceleration of cost-cutting goals established under his predecessor, Jeffrey R. Immelt, who targeted $1 billion annually this year and next. Mr. Flannery doubled the 2018 goal to $2 billion in expenses to be eliminated.Mr. Flannery had previously announced an acceleration of cost-cutting goals established under his predecessor, Jeffrey R. Immelt, who targeted $1 billion annually this year and next. Mr. Flannery doubled the 2018 goal to $2 billion in expenses to be eliminated.
G. E.’s stock price has fallen by 35 percent this year. G. E.’s stock price, which had fallen by 35 percent as of Friday, was down more than 5 percent in midday trading on Monday after the announcement that the dividend would be cut.
G. E. last cut its dividend in 2009 in the throes of the financial crisis, when it was the nation’s largest non-bank financial institution. That dividend cut was the first since the Great Depression for a company long revered as a model of enlightened management.G. E. last cut its dividend in 2009 in the throes of the financial crisis, when it was the nation’s largest non-bank financial institution. That dividend cut was the first since the Great Depression for a company long revered as a model of enlightened management.
The dividend cut announced on Monday reflects the company’s declining cash flow, but it also underscores Mr. Flannery’s decision to further pare back G. E.’s portfolio of businesses. The total dividend payout had been more than $8 billion a year, among the most costly for American corporations. But the cash flow to cover that bill has faltered. The move announced on Monday reflects the company’s declining cash flow, but it also underscores Mr. Flannery’s decision to further pare back G. E.’s portfolio of businesses. The total dividend payout had been more than $8 billion a year, among the most costly for American corporations. But the cash flow to cover that bill has faltered.
When G. E. reported its third-quarter earnings last month, it said that cash flow for the year would be about $7 billion, down from an initial target of $12 billion to $14 billion.When G. E. reported its third-quarter earnings last month, it said that cash flow for the year would be about $7 billion, down from an initial target of $12 billion to $14 billion.
G. E. executives emphasized that this year’s cash shortfall was attributable to two businesses — the oil-field equipment unit, which showed persistent weakness, and its power-turbine business, which had a surprisingly sharp decline. Both units are expected to improve their performance next year, executives said, lifting G.E.’s cash flow in the process.G. E. executives emphasized that this year’s cash shortfall was attributable to two businesses — the oil-field equipment unit, which showed persistent weakness, and its power-turbine business, which had a surprisingly sharp decline. Both units are expected to improve their performance next year, executives said, lifting G.E.’s cash flow in the process.
Still, Mr. Flannery warned then that 2018 would be “a reset year.” Still, Mr. Flannery his and team on Monday cautioned that 2018 would be “a reset and stabilization year.”
And given the slimming-down strategy, G. E. will be a smaller company, with fewer businesses to contribute cash in the future. And given the slimming-down strategy, G. E. will be a shrunken company, with fewer businesses to contribute cash in the future.