General Electric Co.’s new boss is shrinking the company and slashing the dividend as he wrestles with one of the biggest slumps in the industrial behemoth’s 125-year history.
Chief Executive Officer John Flannery is planning to focus on aviation, power, renewable-energy and health-care equipment when he unveils his plan for GE at an investor meeting Monday, said a person familiar with the matter. He’s also preparing to exit some other businesses and chopping the quarterly payout in half -- only the second cut since the Great Depression.
The extraordinary steps underscore the severity of the challenges facing the new CEO, who is readying a dramatic overhaul three months after taking the reins from Jeffrey Immelt. GE, plagued by poor cash flow amid slumping markets in power generation and oil-field equipment, is by far the biggest loser on the Dow Jones Industrial Average this year.
Flannery already has made changes to top management, sought deep cost cuts and welcomed a representative of activist investor Trian Fund Management to GE’s board. In addition to jet engines, gas turbines and ultrasound machines, the company’s offerings include locomotives and an aircraft-leasing portfolio. Its lighting products trace their origins to GE’s formation by Thomas Edison.
The shares climbed 1.5% to $20.80 ahead of regular trading New York. GE fell 35% this year through Nov. 10.
The quarterly payout will drop 50% to 12 cents a share, the Boston-based company said in a statement Monday, in a move that will save about $4 billion a year. GE last reduced the dividend in 2009 as it struggled with fallout from the financial crisis.
“We understand the importance of this decision to our shareowners and we have not made it lightly,” Flannery said in the statement. “We are focused on driving total shareholder return and believe this is the right decision to align our dividend payout to cash flow generation.”
GE in October slashed its expectations for 2017 profit and cash flow as Flannery called the company’s performance “completely unacceptable.”
Investors have been bracing for a dividend cut as GE’s slide deepened in recent weeks. The stock has lost about $100 billion in market value this year even as broader indexes have advanced.
The dividend had been recovering from a dramatic 68% cut in 2009, after Immelt for weeks had said the payout was safe. Immelt has called slashing the dividend “the worst day of my tenure as CEO.”
Flannery’s plan to refocus the company was reported earlier by the Wall Street Journal, which said he plans to sell the company’s majority stake in Baker Hughes, a provider of oil-field equipment and services. The sale process, which isn’t part of the $20 billion target for disposals that GE announced last month, hasn’t started, the Journal said.
by Richard Clough