General Electric Co. slashed its 2017 projections as new Chief Executive John Flannery started to outline his restructuring plans, setting a goal to exit more than $20 billion of the struggling conglomerate's businesses.
"Our results are unacceptable to say the least," Mr. Flannery said on a conference call Friday, noting that his review of the company is exhaustive and everything is on the table. "Things will not stay the same at GE."
Continue Reading Below
Mr. Flannery, who came into the job in August and recently became chairman with the early exit of Jeff Immelt, has expressed an urgency to reduce costs and rethink the sprawling company. In addition to lowering earnings targets by a third, the company Friday cut its forecast for 2017 cash flow by half from a July projection.
GE shares fell 17 cents in Friday-afternoon trading to $23.41, after tumbling as much as 7% earlier in the day. The stock had fallen 25% this year, erasing nearly $80 billion in market value even as the stock market has surged to record highs.
"We need to make some major changes," Mr. Flannery said. He is focusing on shifting the culture of the company, he said, and working with the board to change compensation plans to better align policy with investors.
The Boston company's third-quarter earnings fell as it incurred hefty restructuring charges, reporting a profit of $1.8 billion, down from $2 billion a year earlier. Excluding restructuring charges and other items, adjusted per-share earnings fell to 29 cents from 32 cents, still well below Wall Street expectations of 49 cents.
Impairments and restructuring charges during the period dented GE's per-share earnings by 16 cents.
Mr. Flannery is slated to update investors at a Nov. 13 meeting on the details of his strategic review. He has already been cutting jobs, research operations and executive perks, like corporate jets.
GE said it is looking to streamline its portfolio of businesses by more than $20 billion in the next 1 to 2 years, without providing details. Mr. Flannery said the company has many strong divisions but also "a number of other businesses which drain investment and management resources without the prospects for a substantial reward."
The company lowered its adjusted 2017 per share profit target to $1.05-$1.10 from a previous view of $1.60-$1.70. Analysts currently expect earnings of $1.53 a share in 2017.
Cash flow from operating activities is now projected to be about $7 billion, a steep revision from the previous view of $12 billion to $14 billion, with a big part of the drop coming from the power division, which primarily makes turbines for gas and coal-fire power plants.
In an interview, Mr. Flannery said he was surprised with the results from the power business, GE's largest, putting the blame squarely on the former management of the division. He said the other divisions of the company were "quite strong" when looking at their orders.
"I'm disappointed in the power business. Deeply," Mr. Flannery said, noting there was an overestimation of demand in the power market, along with too much inventory and not enough cost cuts to adjust to the pressures.
"We have not run the business well of late," he said. GE expanded the division, now its largest by revenue, following the acquisition of Alstom SA's power plant assets in 2015.
The drop in cash flow has raised persistent questions about how the company will fund its dividend, pensions and capital investments. On Friday, Mr. Flannery said the current cash flow projections aren't going to be the norm at GE, but the company is looking to balance investing in growth and paying the dividend.
He said investors should think of 2018 as a "reset year" but wouldn't commit to the company maintaining its dividend at the current level. Mr. Flannery had previously pledged the dividend wouldn't change, but said Friday that his view is "continuing to evolve."
"Expected bad. Got bad," said analyst Scott Davis, CEO of Melius Research, noting the quarterly results raise questions about whether the company is fixable. "Pressure to break this up just went through the roof."
GE is ahead of its goal to cut $1 billion in industrial costs this year, cutting $500 million in the third quarter and hitting $1.2 billion for the year so far. Earlier this year, GE set a goal to cut $1 billion in such costs this year and next, under pressure from activist investor Trian Fund Management, which recently gained a seat on the company's board.
Mr. Flannery said he would look at potential changes to the board, which was mostly appointed during Mr. Immelt's time running the company. "The board is big at 18 people, there is no doubt about that, and that is one of the topics being discussed," he said.
Incoming Chief Financial Officer Jamie Miller said the company would simplify how it reports results. It will revise how it measures free cash flow to be in line with others in the industry with a "back to basics approach," she said.
Mr. Flannery already has called on company leaders to review their divisions and plans to streamline the company's global research efforts, which could include shutting down research centers in Shanghai, Munich and Rio de Janeiro, people familiar with the matter have said.
GE's revenue jumped 14% to $33.5 billion in its third quarter, up from $29.3 billion a year earlier. Analysts had expected revenue of $32.56 billion, boosted by a merger of GE's oil-and-gas unit with Baker Hughes.
Oil-and-gas revenue rose 81% from a year ago driven by Baker Hughes; without the new assets, revenue fell 7%. Revenue growth was mixed with aviation and health care businesses expanding, but power, lighting and transportation all shrinking. Transportation revenues dropped 14%.
--Cara Lombardo contributed to this article.
Write to Thomas Gryta at email@example.com
(END) Dow Jones Newswires
October 20, 2017 13:19 ET (17:19 GMT)