GE promises big changes, investors cast doubts
General Electric’s (NYSE:GE) opportunity to convince shareholders that it can turn around its business came on Monday, and even as the company unveiled its strategy, investors ran for the exits.
GE closed Monday’s session down 7.1%.
FOX Business attended GE’s investor day, and the company’s stock was trading down about 5% as the company announced a dividend cut, said it would shrink its 18-member board to 12 members come April and reiterated that it would sell $20 billion worth of assets.
Losses accelerated as the session went on, and during the Q&A session, shares were down 7%, and fell even more later in the session before regrouping a bit, suggesting investors were unmoved by GE’s strategy.
For those left standing, still holding GE stock, they have taken a beating. Shares are down over 40% year-to-date. While this is a big concern to shareholders, CEO John Flannery isn’t worrying about GE’s share price.
During the Q&A section of the conference, Flannery stated: “I don’t stand around thinking about the stock price. I am not motivated by that.”
The executive, who became CEO in August, said milestones that will grab his attention are growth in earnings and growth in cash flow. He added that these items are the “ultimate litmus test. At the end of the day, cash lets you grow, invest.”
GE’s dividend payments ate up around 100% of its free cash flow in 2017. After cutting its dividend in half, in 2018, about 60-70% of its free cash flow will go into funding dividends. “This was a decision that was hard to come to,” acknowledged Flannery, commenting on the dividend cut. But, balanced shareholder return is a mix of dividends and share value growth.
Beyond the dividend cut, streamlining the business will be a crucial component of GE leadership’s long-term strategy. They will focus on their core businesses of power, aviation and healthcare. Simply put, GE said its focused portfolio of industrial businesses will be smaller, simpler, best-in-class, and essential for modern life. They want to “power the world, transport people safely, and save lives.”
As revealed in its quarterly earnings report, the company is targeting $20 billion in asset sales. But other than noting what businesses they will focus on, GE executives didn’t detail their specific asset sales, noting that much of this is still in progress.
When pushed about asset sales and their potential impact on cash flow, Flannery added that “we are going to wait and see as it plays out.” When questioned about how long these asset sales will take, he said it is for the market to decide, and that GE is focused on what they can control, adding that the company is not in duress.
Acknowledging that GE is in a tough spot, while detailing the path forward, Flannery said this is “the opportunity of a lifetime to reinvent.”
“This is our time. It is ‘game on,’” he added. “I could not be more secure and confident.”