Investors worry shrunken GE to be less profitable

General Electric will radically shrink to focus on aviation, power and healthcare, betting on sectors it thinks it can make profits in, as the most famous US conglomerate tries to revive its share price after a decade and a half of stagnation.

The 125-year-old company cut its dividend and profit outlook in half as it begins the transition, in a widely expected plan unveiled on Monday by new chief executive John Flannery in New York.

GE shares fell 6 per cent to $19.22, its lowest in more than five years, valuing the entire company at about $168 billion, as investors worried how the slimmed-down company would generate cash to justify its stock valuation.

“By the numbers, we see a core operating performance that is below plan, and, currently, a consensus expectations curve that we think remains too high,” said JPMorgan analyst Stephen Tusa.

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GE is the worst-performing Dow component this year, down 35 per cent through Friday’s close. GE stock has effectively been dead money since September 2001, when recently retired chief executive Jeff Immelt took over, posting a negative total return even after reinvesting its juicy dividends.

‘Restoring the oxygen’

Flannery, who took over as CEO on August 1st, said he was “looking for the soul of the company again” and would focus on “restoring the oxygen of cash and earnings to the company”.

The transition likely means the sale of $20 billion of assets. GE will jettison businesses with “a very dispassionate eye”, Flannery said, keeping only units that offer growth, a leading market position and a large installed base.

That could mean exiting businesses like lighting, transportation and oil and gas, closing factories around the globe, analysts said.

GE also plans to cut 25 per cent of corporate staff at its Boston headquarters. It has already started shedding jobs at its software business.

The dividend cut, only the third in the company’s 125-year history and the first not in a broader financial crisis, is expected to save about $4 billion in cash annually.

GE will also cut its board to 12 from 18 members.

– Reuters