GE suffers turbulence

GE suffers turbulence

GE shares dump 7% after a turnaround plan was unveiled.

John Flannery, GE’s (General Electric) CEO, apologized a month ago on investor day for the company’s performance and said the company would be “more focused”. The plan will affect health care, aviation and energy areas.

GE leaders look to slash costs and stabilize the beleaguered manufacturer. Image: AP

Despite all the lineage of the company -founded by Thomas Edison 125 years ago- GE is in trouble. Once was valued over US$400 billions, now it is near US$150 bn.

Edison started the company with the commercialization of the light bulb, then some other areas were included like power-generation equipment, locomotives, industrial plastics and aviation. Another gem was the research laboratories, a world’s top generators of new patents, but neither worked.

So, what is next for GE: “The GE of the future is going to be a more focused industrial company,” said during his presentation at the company’s investor day. “It will leverage a lot of game-changing capabilities.”

As diagnosed by The Economist: “After GE’s finance arm had been weakened by the global financial crisis Immelt (the previous CEO) wound down the company’s financial holdings. Its current troubles are primarily the result of his failure to prepare GE for heightened competition in a slowing global energy market.”

Fitch Ratings said a slower return to both higher margins and stronger free cash flow than previously anticipated prompted the downgrade. GE’s performance was being affected by “secular” changes in its power segment’s gas turbine business that has reduced long-term prospects for growth, it added.

The company is aiming to reduce overhead costs by $2 billion next year, with half of that coming from its troubled power unit, which sells electrical generation equipment. Flannery’s plan covers three major arrangements: cost control, cultural change and cuts.

The famous company, once under the leadership of the iconic Jack Welch, needs a re-foundation and new targets on the map. Can Flannery go beyond his old boss? The markets have not really the patience.