GE GE Aerospace

By Thomas Gryta and Allison Prang 

General Electric Co. revealed securities regulators have opened a probe into the company's accounting practices, a new challenge to the conglomerate's efforts to untangle its problems and turn around its struggling business.

The Securities and Exchange Commission is investigating GE's recent review of its insurance business that led to massive charges, as well as the company's revenue recognition for certain service contracts.

"We are cooperating fully with the investigation, which is in very early stages," Chief Financial Officer Jamie Miller said on a conference call Wednesday morning.

The disclosure came as GE's fourth-quarter revenue and profit dropped amid its massive restructuring and further deterioration in its core power division.

Shares of GE, which had rallied as much as 5% in premarket trading, surrendered those gains after executives revealed the existence of the SEC probe. The stock was recently down about 1% to $16.73. The shares have tumbled 45% over the past 12 months.

Last week, GE surprised investors when it disclosed it would book a $6.2 billion charge in its fourth quarter related to its insurance operations and needed to set aside $15 billion over seven years to bolster insurance reserves at its GE Capital unit.

The company said the moves were necessary after a review of the insurance business revealed that it wasn't collecting enough premiums to cover claims for long-term insurance that GE had guaranteed. GE has said the shortfall was detected in its regular annual review of the insurance business

Chief Executive John Flannery took over GE in August of last year and is working on restructuring the company, which could involve dividing the company up. Mr. Flannery wants to focus on power, aviation and health care.

On Wednesday GE reported more weakness in its power and transportation divisions, with revenue and operating profit plunging from a year ago.

In prepared remarks Wednesday, Mr. Flannery said "we expect market challenges to continue" for the power division.

The company reported a loss of $9.64 billion, or $1.13 a share, down from a profit of $3.67 billion, or 39 cents a share, in the same period the year before. On an adjusted basis, GE reported a profit of 27 cents a share, down from 46 cents a share. Analysts polled by Thomson Reuters were expecting adjusted earnings of 29 cents a share.

Changes from the new U.S. tax law hurt the company's earnings by 40 cents a share. Earnings were also hurt by the $6.2 billion charge related to its insurance operations. GE also said it needed to set aside $15 billion over seven years to bolster insurance reserves at its GE Capital unit.

In premarket trading Wednesday, shares rose 2.1%. In the last 12 months, they have fallen 44%.

Mr. Flannery has already started some of the turnaround work. Last year, GE cut its annual earnings guidance along with its dividend.

Revenue at GE fell 5.1% to $31.4 billion.

Revenue from oil and gas rose 69%, as the sector's adjusted profit fell 25%. GE finished merging Baker Hughes and its own oil and gas division last summer.

Revenue for the company's power sector fell 15% and operating profit fell 88% from a year ago.

Meanwhile, GE saw higher operating profit and revenue from its aviation and health-care divisions.

Write to Thomas Gryta at thomas.gryta@wsj.com and Allison Prang at allison.prang@wsj.com

(END) Dow Jones Newswires

January 24, 2018 09:54 ET (14:54 GMT)

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