AP NEWS

Problems remain at GE despite change

October 2, 2018

We’re long past the days when General Electric Co. held some kind of magical sway over the American business imagination, let alone the scene in Connecticut.

And if there’s a person who thinks the company’s first outsider CEO in at least a few generations can turn the conglomerate around anytime soon, he or she didn’t speak up Monday.

That’s why we’re seeing a more muted response than we might have expected to the news, before markets opened, that GE board member H. Lawrence Culp Jr. had taken over for a vanquished John Flannery as chairman and CEO — just 14 months after Flannery took the tarnished throne.

Flannery had been the career GE insider, long on pragmatic execution and short on dreamy declarations, who took on the task of cleaning up a bolluxed, 16-year run by Jeffrey Immelt. With Culp, known as Larry, hailed as a great execution guy — he dazzled at Dannaher Corp. from 2000 to 2017 — the cleanup narrative muddies a bit.

The fact that Flannery grew up in West Hartford and earned one short sentence of extremely faint praise in Monday’s press release is perhaps another small whack at Connecticut from GE, which has seen its payroll in the state fall below 3,000, from more than 7,000 not many years ago, and of course, moved its headquarters to Boston two years ago.

Further muddying the cleanup story: GE wasted no time delivering bad financial news, suspending its previous guidance for 2018 and announcing a $23 billion non-cash impairment charge for its, well, impaired power business. That’s the Boston-based company saying “Hey, the intangible value of this business isn’t what we had said, in fact it isn’t anything at all, so we’ll readjust our balance sheet but we don’t have to write any checks just yet.”

Considering that, the GE runup of 80 cents, or 7.1 percent on the New York Stock Exchange, is pretty good. Still, even with Monday’s bump, GE stockholders have seen their shares drop by 62 percent since the start of 2017. The S&P 500 is up 30 percent in that same time.

That means a $1,000 investment in GE at the start of 2017 is worth barely more than a third of a $1,000 investment in the bellwether large-company index.

The point: Monday’s boost reflected a market looking for any good news to grasp, even when bad news slammed investors in the face. Just as any high-flying company’s shares rise in part on irrational sentiment, a dog such as GE — especially if it was once the mightiest corporation in America — sustains kicks from the market just for being a dog. Any sign of change causes cheer.

Still, as many analysts pointed out Monday, GE’s fundamental problems remain. The last straw was a failure by the first few turbines in the new generation of GE’s generation technology, the heart of GE’s largest remaining business.

Other issues include continued regulatory concerns; a possible cyclical slowdown in the aviation business, which has shown healthy gains in recent years in both sales and profits; and slow recovery of cash flow amid huge debt, which could force another cut in the dividend after Flannery halved it in 2017.

In Connecticut, GE continues to matter as both an employer and a widely held stock. Its GE Capital segment, after a massive sell off in 2015 and 2016, is home to fewer than 1,000 people at several businesses, almost all in Norwalk.

Also in Norwalk, the corporate staff, pared to about 400 from the 800 who worked in Fairfield before Immelt moved the headquarters to Boston, may still be shrinking slowly. In April, the company eliminated 80 local jobs in a digital technology unit that Immelt had created when he thought GE could be the global software juggernaut for manufacturing.

Alstom, the French power business that GE bought for an inflated price of $11 billion in 2011, has about 1,000 employees in Windsor and Bloomfield, and GE has about 300 employees in Plainville at one of its historic industrial divisions, part of the company for 100 years.

It’s no happenstance that the two men now in charge — Culp and Thomas W. Horton, a former chairman and CEO at American Airlines — are both GE outsiders appointed to the board just this year, a few months before the Dow Jones Industrial Average booted GE, an original member.

Monday’s move reflects the fact that Flannery was really just a transition to the outsider regime, like the first boyfriend or girlfriend coming out of a long, failed marriage. He never had a chance.

And like that marriage, GE’s reign as a magical conglomerate reflecting American supremacy recedes further into memory. Now it’s up to Culp to break it up once and for all.

AP RADIO
Update hourly