On Monday, General Electric suddenly replaced its CEO. Shares of the ailing industrial conglomerate had a positive response, which spilled over into Tuesday’s session, some welcome momentum for a company whose shares are down over 31 percent year-to-date.
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|GE||GENERAL ELECTRIC COMPANY||6.76||+0.19||+2.89%|
GE’s struggles are well documented – and investors were uninspired in ex-CEO John Flannery’s plan to right the ship. Flannery was in the role a little over a year.
According to Melius Research, most investors remained on the sidelines even after the new leadership change was announced. The independent equity research and consulting boutique outlined 10 fixes that the company needs to make to improve its business.
1. Improve communication
Melius cited confusion about why a company with such vast public relations and investor relations resources would put out such a skinny press release announcing two major events. “We can’t remember a time where a CEO change did not come with a public conference call and we can’t recall a time where an impairment didn’t come with granularity,” according to notes from the company.
2. Clean house
The analysts believe that Flannery was too slow when it comes to adjusting staffing, noting that he did change corporate leadership but did less within businesses and seemed to protect certain folks. They recommend GE shakes up its global leadership group and bring in someone external to run the power business.
3. Fix GE Power
Melius doesn’t believe GE has made an honest attempt yet, even though it is obvious that GE Power needs to be fixed. They recommend GE cuts the risk profile of its contracts and sacrifices market share in order to raise its profit profile.
4. Fix the balance sheet
Melius also critiqued Flannery’s moves to fix the balance sheet. Going forward, they think GE may need to sell some valuable assets, perhaps even pieces of life sciences, aircraft leasing and wind power, just to name a few. But pay off some debt and get the rating agencies off your back.
5. Cut corporate costs to Danaher levels
According to Melius, if Culp does nothing but execute on corporate costs, he will still win about half of the battle. They believe GE is somewhere between two times and ten times the size and cost it should be.
6. Raise cash flow
According to Melius, Culp “knows what to do here.” It starts with the corporate cost cuts, then incentives need to drive cash. They recommend GE cuts out the big, risky projects and that they stop spending money on advertising.
7. Cut complexity
“GE is one of the most complex companies in the S&P,” according to Melius. “Veteran analysts can’t get through the filings and/or earnings slides.” The complex statements leave many analysts wondering what GE might be hiding.
8. Create a culture of honesty
Melius believes the complexity makes folks less willing to believe GE, and in reality that GE makes it hard to believe GE.
9. Eliminate waste from its manufacturing processes
According to Melius, in 1996 GE was the poster child for Six Sigma adoption and Lean Six Sigma quickly followed. These processes are meant to make manufacturing more efficient. But now, Melius said they “aren’t even sure if GE is even a good manufacturer anymore.”
10. Melius’ note suggested to go back to “Point 1” again.