GE to retain Power, cut dividend as part of overhaul

Company's actions are aimed at making firm stronger, raising share price
General Electric's iconic rooftop sign looms over Erie Boulevard in Schenectady
General Electric's iconic rooftop sign looms over Erie Boulevard in Schenectady

SCHENECTADY — General Electric will retain its Power, Renewable Energy and Aviation businesses and likely reduce its stock dividend in an effort to reshape itself as a leaner, stronger company.

The firm announced a summary of its long-awaited restructuring plan on Tuesday. Among the changes, GE said it would spin off GE Healthcare and Baker Hughes as separate companies.

Response by investors was favorable: GE’s beleaguered stock bounced 7.8 percent off a near-seven year low, closing at $13.74 per share Tuesday afternoon. 

CEO John Flannery painted the changes as a sweeping overhaul that is the culmination of work he began when he took over the company in 2017, with a mandate to increase profits and stock value.

The revised General Electric will focus on three core products, each with the fundamental similarity of having large rotating machinery at their core: Aviation (jet engines), Power (gas and steam turbines and generators) and Renewables (wind turbines and hydro power).

They will be supported by GE Capital (money), GE Digital (software) and GE Additive (3D laser printers to make intricate parts more quickly at lower cost).

GE Healthcare will become a standalone business owned by GE shareholders in the next 12 to 18 months. Gas and oil unit Baker Hughes also will be separated, though that is expected to take longer.

GE Transportation already is in the process of separating, and just Monday, General Electric announced the sale of its Distributed Power business.

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Other former GE businesses include Appliances, Water, Silicones and Plastics, and the company has been trying to sell Lighting, as well.

GE Power for years has been based in Schenectady and has thousands of employees here. The company called the city its headquarters as recently as 2017, but lately said it does not consider any one site to be the GE Power headquarters.

Approximately 4,000 people work on the sprawling campus at the foot of Erie Boulevard. Some are assigned not to Power but to other businesses, such as Renewables, which has several hundred employees and the headquarters of its onshore wind power division there.

GE Healthcare opened a state-of-the-art factory in Rensselaer County in 2009 to produce imaging equipment. As of a year ago, more than 150 people worked in three shifts at the 230,000-square-foot facility.

General Electric’s other major presence in the Capital Region is its Global Research headquarters in Niskayuna, which employs roughly 1,500, many of them scientists and engineers.

Flannery singled out Global Research’s work for praise in a conference call with financial analysts Tuesday morning, though it seemed more to illustrate General Electric’s ability to innovate than to draw attention to Global Research.

Also of interest in the Capital Region, with its many GE investors, is the stock dividend.

General Electric cut the dividend in half — to 48 cents per share — in November, a hard blow to many investors who held onto the stock due to the steady and relatively lucrative quarterly payout, even as the share price fell. In a telling sign, the 7.8 percent jump in share price value Tuesday was barely larger than the 7.2 percent drop Nov. 13 when the dividend cut was announced.

Flannery on Tuesday said another cut is likely. The dividend will be maintained at 48 cents until Healthcare is separated in 12 to 18 months. The Healthcare division’s share dividend will then change to match the dividend paid by similar companies in the health care and industrial sectors.

“We expect that to result in a smaller aggregate dividend at the GE level,” he added.

Flannery said Tuesday that General Electric will emerge from this restructuring as a leaner company focused on growth and shareholder value.

The three core businesses will each be its own center of gravity, while the corporate headquarters in Boston will be reduced in size, cost and function.

GE Power, with its reliance on electricity generated from fossil fuels as demand for renewable energy grows, has been the cause of some of General Electric’s financial problems and one of the main focus points of its turnaround efforts. GE Power has been ordered to cut its workforce by 12,000 and reduce costs by $1 billion in 2018. It has already shuttered more than a dozen facilities and eliminated thousands of jobs, a handful in Schenectady.

Flannery on Tuesday was optimistic about GE Power’s future but blunt about its present status.

“While our results here have been unacceptable, this is a fundamentally strong franchise with leading technology, valuable installed base and global reach,” he said.

“We are taking action to remediate the issues we saw in 2017 and to right-size our cost structure.

“This is a turnaround story, and we are confident in our ability to improve the future operating performance.”

Flannery noted that GE equipment generates a third of the world’s electricity, and that fossil fuels will continue to be burned to generate electricity — especially natural gas, which fuel some of GE Power’s premier products.

“The big picture is renewables are up, coal, nuclear are down, gas remains an important part of the global energy mix,” he said.

“We’re playing a long-term game there. It’s going to be choppy the next one to two years as we go through this, but [GE Power is] a valuable asset … we’ve got to keep a long-term perspective on the power industry and our position in it.”

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Categories: Business, News, Schenectady County

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