On Wednesday, General Electric (NYSE:GE) stock fell more than 7% following a public statement made by CEO John Flannery that the company expects to see no profit growth in the current year. But shares rebounded slightly on Thursday, so what exactly do investors need to know right now? Let’s take a closer look.
The Negatives
John Flannery has had a rough few months as newly appointed CEO. The $9.5 billion buyout of Alstom (PA:ALSO) by former CEO Jeffery Immelt going bust and a stark overvaluation of company earnings projections are just a few of the problems that Flannery has faced in his time as CEO.
GE’s main source of revenue lies in its power business. The company expects no profit growth as a direct result of being unable to garner demand for its gas turbines, according to Flannery’s new comments. This trend will most likely carry through 2019 and 2020.
As the company hacks away at non-central investments, free cash flow is expected to fall, which could result in a significantly lowered dividend payout. Flannery did not comment on the current dividend for 2019, but he does expect changes based on GE’s portfolio moves.
Plans For Improvement
GE is looking to reshape and revamp its overall structure in a number of specific and tactical moves, centered around simplifying its current business model.
GE’s first major move was its $11 billion merger of its railroad business with Wabtec Corp. (NYSE:WAB) , a passenger rail transport company. This helped GE raise some capital in order to fuel its business ventures and hopeful recovery.
In the future, Flannery wants to diminish the company’s financial services business, GE Capital, to, again, raise capital and centralize the company. The potential for a company breakup looms in the air as share prices continue to fall.
Despite increased pressure from investors for quick change, Flannery continues to hammer down the notion that change will be progressive and slow, stating that the recovery “is not going to be a quick fix.”
Keys Takeaways
GE stock plummeted due to CEO John Flannery’s announcement that the company expects to see no profit growth for the current year. This is direct result of failure in selling its gas turbines, which will most likely carry through 2020.
In order to combat its current situation, Flannery seeks to sell non-vital assets in hopes of centralizing the company and freeing up cash for restructuring. The company expects to release its full investment strategy in late June.
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