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GE slashes profit outlook as deeper slump sends shares reeling
[NEW YORK] General Electric Co slashed its profit forecast as earnings fell far short of expectations, underscoring the severity of the challenges facing the company's new boss.
Chief Executive Officer John Flannery is grappling with one of the deepest slumps in the beleaguered manufacturer's history, with hurdles from poor cash flows to slumping power-generation markets. The shares plunged in premarket trading, setting up GE to extend what already is easily this year's biggest loss on the Dow Jones Industrial Average.
"This was a very challenging quarter," Mr Flannery said in an earnings statement, his first as CEO. "While a majority of our businesses had solid earnings performance, this was offset by a decline in Power performance in a difficult market." The cut is the latest step in what is shaping up to be a dramatic repositioning of GE under its new leadership. Mr Flannery this month welcomed a representative of activist investor Trian Fund Management to GE's board and announced several management changes. He is seeking deep cost cuts and has said he will consider all options, including portfolio changes.
The new CEO, who will detail his plans to reshape the Boston-based company at an investor meeting Nov 13, is targeting more than US$20 billion of asset divestitures within two years, GE said.
The shares tumbled 7 per cent to US$21.93 before the start of regular trading in New York.
Adjusted earnings this year are expected to be US$1.05 to US$1.10 a share, down from a previous range of US$1.60 to US$1.70 a share, GE said Friday in the statement. Analysts had anticipated US$1.54 a share, according to the average of estimates compiled by Bloomberg.
The maker of jet engines and gas turbines reported that adjusted profit decreased to 29 cents a share for the third quarter, falling well short of the 50-cent average of analysts' estimates compiled by Bloomberg. GE hasn't missed estimates by more than half a cent in over nine years.
Earnings were hurt by restructuring and impairment charges, as well as a sharp decline in profit in the power-generation division.
GE cut US$500 million in costs during the quarter, bringing the 2017 total to US$1.2 billion, which the company said is ahead of its original plans.
"This is a light-speed version of transformation," said Nicholas Heymann, an analyst with William Blair & Co. "This is a really compressed process." Industrial operating cash flow, a major focus for investors, was US$1.7 billion in the quarter, excluding deal taxes and pension plan funding, GE said.
The company reduced its industrial-cash-flow forecast to US$7 billion after previously saying it could top US$12 billion.
GE's liquidity came under scrutiny after the company reported negative US$1.6 billion in industrial operating cash flow in the first quarter, about US$1 billion worse than the company had anticipated. The measure rebounded modestly in the second quarter.
Management Overhaul Sales fell 3.5 per cent in GE Power, the world's largest maker of gas turbines, as profit plummeted by more than half. GE Aviation, which is boosting production on a new jet engine, increased revenue 8.1 per cent.
Flannery announced several top management changes this month, including naming a new chief financial officer. Jamie Miller, the current head of the GE Transportation unit, will assume the CFO role from Jeff Bornstein in the coming weeks.
The new CEO also became chairman this month - earlier than planned - after the surprise retirement of Jeffrey Immelt, who had been slated to stay until year-end.