GE slashes dividend to a penny, splits Power business

Industrial conglomerate announces more bad news in third-quarter financial results
The General Electric campus in Schenectady
The General Electric campus in Schenectady

BOSTON — General Electric on Tuesday cut the dividend on its stock to a penny per share and announced it would split its Power business — formerly headquartered in Schenectady — into two units.

CEO Larry Culp said the moves were only the beginning of massive changes GE needs to make to improve its financial performance.

The quarterly dividend, historically a treasured source of income for stockholders, was previously 12 cents per share.

Power will be divided into a gas segment — consisting of all gas turbine products and service operations — and a segment comprising the rest of the Power business: Grid Solutions, Nuclear, Power Conversion and Steam.

The large campus in Schenectady, the historic birthplace of the industrial conglomerate, is heavily involved in steam turbine and generator production and service.

The announcements came as Culp and GE Chief Financial Officer Jamie Miller discussed the firm’s third-quarter earnings report, much of it again centered on Power and its struggles.

The company reported a $23 billion net loss in the third quarter, due in large part to a $22 billion goodwill impairment charge — essentially an acknowledgement that GE previously over calculated the value of GE Power by $22 billion.

Miller on Tuesday morning disclosed that the U.S. Securities and Exchange Commission has expanded its investigation into that charge, and the U.S. Department of Justice has begun an investigation of its own.

General Electric’s stock has been on a downward path for more than a year, and it dropped more than 10 percent in heavy trading Tuesday to below $10 a share at times, its lowest price in more than a decade. It closed at $10.18, or 8.8 percent lower than Monday’s close.

Miller did not offer a bright short-term outlook for GE Power.

“In Power, we just are seeing continued impacts from lower market penetration, deal closure delays and uncertainties, and just other operational and project execution issues. And we do see those continuing into ’19,” she said. “It’s clear that our previous forecasts were overly optimistic on the timing and level of deal closures.”

Culp replaced John Flannery as CEO on Oct. 1. Several times during the earnings presentation Tuesday he noted his newcomer status, and he told industry analysts during a Q&A that he couldn’t fully answer some questions.

He said he’d spent much of his short tenure examining the Power business.

“It has become clear to us that we need to simplify the business structure,” he said, explaining the move to split Power into two units, eliminate its headquarters and have both units report directly to him. (As recently as 2017, the company said Schenectady was the headquarters of Power, but by mid-2018, it said it didn’t consider any one place the headquarters.)

“Right now, I’m spending most of my time with the Power business,” Culp said. “We need to establish a realistic outlook there, particularly for the gas business, and drive improvements from there.”

GE Power has been the focus of revitalization efforts for a year now: Flannery announced in November 2017 that Power would need to cut 12,000 workers and $1 billion in expenses.

GE Power has closed more than a dozen facilities and cut the workforce at others as it pursues this goal. In August, it cut 225 jobs at its Schenectady facility, where about 4,000 people work for Power and other businesses, notably Renewable Energy. GE had made a series of smaller job cuts in Schenectady in recent years, and at the Niskayuna headquarters of its Global Research arm, where 1,500 people work.

Culp said Tuesday morning that “everything is on the table” at GE Power.

Later Tuesday, GE Power would not say if any decisions had already been made that might affect operations in Schenectady. It pointed to Culp’s words, which indicate that most decisions are yet to be made, and that they would be discussed internally before they are discussed publicly.

The dividend reduction will take effect with the next quarterly payout, expected to be in December. It is expected to free up about $3.9 billion a year for the cash-starved company.

GE cut its dividend in half in November 2017. With the new change, the quarterly payout to stockholders will have gone from 24 cents to 1 cent per quarter in just one year’s time.

“Going forward, we will target a dividend payout ratio in line with peers, over time,” Culp said.

There were a few bright spots in the earnings report:

  • The Aviation, Healthcare and Transportation businesses did well, turning profits of 22.3 percent, 18.3 percent and 17.4 percent, respectively.
  • Industrial orders were 7 percent higher than a year earlier.
  • The $2.63-per-share loss was a 14-cent profit, not counting the goodwill charge and making other adjustments.

Culp acknowledged that the overall picture was not rosy, saying, “The company perhaps doesn’t enjoy the reputation in certain quarters it once did.” But he expressed optimism for a turnaround, adding, “A good deal of what we’re talking about here is also geared toward running the business better.”

As for GE Power, Culp said: “I think part of what we need to do at Power is wring out a little bit of the undue optimism … so that we can establish a baseline that we can build on.”

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