This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.nytimes.com/2017/11/13/business/ge-dividend-flannery.html

The article has changed 6 times. There is an RSS feed of changes available.

Version 3 Version 4
G.E. Cuts Dividend as New C.E.O. Moves to Streamline an Industrial Giant G.E. Rolls Back the Breadth of Its Ambitions
(about 2 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. John Flannery, the new chief of General Electric, is backing away from the ambitious designs of his two predecessors, who steered the corporate giant and its conglomerate-style empire building for more than three decades.
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. Mr. Flannery, who became chief executive in August, left no doubt on Monday that the conglomerate era is long gone. The new G.E., he declared repeatedly in his first detailed presentation on its future, will be a smaller company with 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. The operations up for sale include businesses that reach back to the days of G.E.’s founder Thomas Edison, like light bulbs and railroad locomotives. More than $20 billion in assets are earmarked for sale in the next couple of years.
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. In addition, to help pay for the remaking of the company, G.E. announced on Monday that it would cut its dividend, only the second time it has done so since the Great Depression. The quarterly payout will be sliced in half, to 12 cents a share.
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. The goal is to make G.E. “simpler and easier to operate,” Mr. Flannery said. “Complexity has hurt us.”
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. That complexity was long a part of the company’s pitch to investors. Past executives like Jack Welch argued that they could efficiently manage businesses that had little in common, like television, with NBC, and financial services. Other companies followed that thinking as well, leading to a wave of deal-making.
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. The streamlining began under Jeffrey R. Immelt, who led G.E. for 16 years after Mr. Welch retired in 2001. Mr. Immelt’s goal for G.E. was to create an industrial company for the internet age, adding software and sensors to industrial equipment to make “smart” machines. It was a bold plan, and Mr. Immelt once predicted that G.E. would become “a Top 10 software company” by 2020.
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.” No more. While the digital strategy is still vital to G.E., Mr. Flannery said he was cutting that unit’s spending by $400 million in 2018, and focusing on a few products.
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. Even the G.E. board of directors is being reduced, to 12 members from 18. Three of the dozen will be new directors.
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. Mr. Flannery sought to portray the path ahead not as a retreat but as an inspiring challenge.
Yet Mr. Flannery portrayed the path ahead not as one of retreat but as one an opportunity, for G. E. workers and for the company’s investors. “This is the opportunity of a lifetime to reinvent an iconic company,” he said.
“We will produce results that our owners, and that we, will be proud of.” he said. “This is our time to reinvent the company.” Still, the hoped-for reinvention, even if successful, is going to take time. G.E. lowered its earnings target for next year and reiterated that 2018 would be a “reset year.” And the outlook for 2019, while improving, is expected to be challenging as well for its big power-turbine business, which fell off sharply this year.
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. It will also change the complexion of the company. G.E., the country’s largest manufacturing company, 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 with far fewer in the coming years, in more focused areas.
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. “John Flannery is generally saying and doing the right things,” said Scott Davis, chief executive of Melius Research, an independent financial analysis firm. “But I was looking for more — faster and more aggressive moves, both on cost-cutting and thinning the portfolio of businesses.”
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. Concerns about the pace of change and the dividend cut sent G.E. shares, which had already dropped by 35 percent this year through Friday, down more than 7 percent on Monday.
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. Mr. Flannery had previously given broad outlines of his strategy, including that the company would shed at least $20 billion in assets over the next two years. What came on Monday were details that confirmed a shortlist of businesses that are up for sale, like lighting, which has quietly been on sale for months.
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. He also emphasized his belief in the vitality of a smaller G.E., and nodded to products like electric generators, jet engines and medical-imaging equipment. Because of those products, Mr. Flannery said, the company will continue to “power the world,” “transport people safely” and “save lives.”
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. He also described other parts of the businesses as “fundamentally strong,” including wind turbines for renewable energy, and the company’s railroad-equipment unit, which is expected to be sold off.
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. Mr. Flannery’s strategy will accelerate the streamlining job begun by his immediate predecessor. Mr. Immelt described the company he inherited as a “classic conglomerate.” During his tenure, G.E. sold off its media business, NBC Universal, to Comcast and its consumer appliance business, among others.
Still, Mr. Flannery and his team on Monday cautioned that 2018 would be “a reset and stabilization year.” But the biggest move was to shed nearly all of the company’s finance arm, GE Capital. At its peak, the finance unit accounted for more than half of the company’s profits, and its lending ranged from home mortgages in Japan to reinsurance for long-term care for the aged.
And given the slimming-down strategy, G. E. will be a shrunken company, with fewer businesses to contribute cash in the future. Mr. Flannery has attacked expenses, and he spoke repeatedly on Monday about injecting more “rigor and accountability” into the G.E. culture. Mr. Immelt departed earlier than expected as chief executive after Trian Fund Management, an activist hedge fund, persistently pressured G.E. to improve its financial performance. Edward Garden of Trian joined the G.E. board last month.
To link management behavior more tightly to financial performance, Mr. Flannery is changing the compensation program for G.E.’s top 5,000 managers. The current plan, he explained, is about 70 percent in cash and the remainder in stock. The new plan, he added, will flip that ratio, with 70 percent of compensation in stock.
His own pay package, Mr. Flannery said, will be 100 percent in stock, with the amount of shares determined by the performance of the company.
Since becoming chief executive, Mr. Flannery has 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.
GE Digital, Mr. Flannery said, “continues to be vital to the company.” But its spending will be trimmed sharply as it concentrates on a narrower set of products that improve the efficiency and performance of G.E.’s industrial equipment.
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.
The move announced on Monday reflects the company’s declining cash flow, but it is also a byproduct of the streamlining strategy. In the future, there will be fewer businesses to put cash in the corporate till.
The total dividend payout had been $8.4 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 cash flow for the year would be about $7 billion, down from an initial target of $12 billion to $14 billion.
The 12-cent quarterly dividend will consume only $4.2 billion. Mr. Flannery acknowledged “the gravity of this decision,” especially for individual shareholders who rely on dividend income. But it is necessary, he said, to “restore the oxygen of cash to the company.”