GE GE Aerospace

By Thomas Gryta 

General Electric Co. boss John Flannery warned investors Wednesday that the company's big power business faces years of pressure and reminded them that major changes at the conglomerate will take some time.

"This is not going to be a quick fix," the CEO said in a presentation at the Electric Products Group conference where he highlighted that GE expects flat profits in power business this year and weak demand for turbines in 2019 and 2020. The business is GE's biggest in terms of revenue and has been a drag on results.

Mr. Flannery made it clear that he continues to consider options for the portfolio of businesses but much of his message was a reiteration of prior declarations to simplify, shrink the financial business and focus on cash generation. The comments disappointed Wall Street, which pushed GE's shares down 7% in afternoon trading to $14.19.

Mr. Flannery's first appearance at the EPG conference comes a year after former boss Jeff Immelt took the stage, just three weeks prior to his retirement announcement. Mr. Immelt backed a 2018 earnings projection of $2 a share that many thought wasn't realistic and expressed frustration with the stock price. The 2018 profit target is now about half what it was, and GE's share price is now down about 50% from a year ago.

"We are running things in a very, very different way going forward," Mr. Flannery, who took over in August, said Wednesday.

Mr. Flannery made his first major portfolio move this week in agreeing to spin off GE's transportation business but didn't provide details on future moves in the portfolio. He declined to commit to the current dividend for 2019, implying that it would be adjusted with major portfolio moves.

"It is ultimately a function of the free cash flow of the company and that is ultimately a function of our operating performance of the assets and the things we do with the portfolio," he said. GE cut it dividend in half in November, only the second reduction of the payout since the Great Depression.

Mr. Flannery promised a more disciplined financial management, an area that has gotten GE in trouble in the past. He wants to shrink the overall size of GE Capital and is working on reducing the risk around long-term care insurance obligations that recently led to a $15 billion shortfall in reserves.

"We are thinking very much of building a cushion here," he said. "Running the company with higher levels of cash, reducing the reliance on short-term funding, making contributions to the pension fund."

Concerning the culture of the company, Mr. Flannery talked of moving decision-making from headquarters to the divisions. He said the shifts aren't related to recent events but he formed ideas for change in the past 10 years that "perhaps a different model would serve us better."

He also countered criticism that restructuring GE is taking too long. He referred to the complexity of the transportation deal and needing to take time to make sure it works best for the company and investors. He scoffed at suggestions that he simply sell the operations for cash months ago.

"If we listened to those demons, I think we would have done something that you guys regretted," he said. "Being deliberate and then moving when things make sense -- as opposed to moving just because somebody wants to -- is just my style."

Write to Thomas Gryta at thomas.gryta@wsj.com

(END) Dow Jones Newswires

May 23, 2018 14:13 ET (18:13 GMT)

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