Under CEO Jeff Immelt General Electric Company (NYSE:GE) once promised to be the company that would lead America into the future, with advanced medical technologies, renewable energy and cloud computing.
Instead its results have become hostage to a past where oil meant certain profit and manufacturers earned fat margins. I didn’t need to see the company’s March earnings report to understand this, and called for Immelt’s removal before it came out.
Those numbers — net income of $619 million, 10 cents per share and revenue of $27.7 million — were not enough to pay for the company’s 24 cents per share dividend and sent the shares down $1. The shares later shed another 50 cents. GE opened for trade May 9 at about $29.80 per share.
Immelt’s plan to convert GE from the entertainment-and-finance powerhouse of former CEO Jack Welch into the kind of industrial company it was at its 19th century birth is now largely complete, but to long-term investors it tastes like ashes.
Hostage to Oil
The problem is that as exciting as its Internet of Things cloud product, Predix, may be, and as exciting as its medical devices business may be, evidenced by the groundbreaking on its new Boston headquarters this month, General Electric’s books remain hostage to the price of oil.
GE’s quarterly report tends to hide the fact, but most of its money comes from the delivery and use of fossil fuels. The company admitted in the report that its industrial cash performance during the quarter was below expectations.
The company has announced plans to combine its oil and gas operations with those of Baker Hughes Incorporated (NYSE:BHI), then spin the resulting company off, but until that transaction is complete the unit remains on GE’s books.
GE also announced plans during the quarter to spin-out its small solar power business, along with its lighting operations, “under the name Current.” This is a move made years ago by industrial rivals Siemens AG (ADR) (OTCMKTS:SIEGY), which created Osram Licht AG (OTCMKTS:OSAGF), and Koninklijke Philips NV ADR (NYSE:PHG), which created Philips Lighting NV.
Renewable energy, especially efficiency, are holding down the price of power, which is a good thing, but this means that energy is no longer a growth market. A social good was pursued that could not deliver for shareholders.