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.
Split It All Up
With GE announcing it will spin out its oil and gas business, and its lighting business, having already divested its financial businesses, and with plans to divest its water and industrial solutions businesses, what’s left are a collection of power generation, aviation, additive manufacturing and healthcare businesses that appear to be performing well, but which are unrelated to one another, and no longer have the tie of finance to bind them.
Bulls call GE a “Super Jupiter”, a giant among pygmies it competes with, but shareholders get no benefit from its size. Immelt has a growing credibility gap between his promised future and his company’s performance.
Other InvestorPlace writers are divided on the company. Bret Kenwell says it will pick itself up again, and it could get a lift if energy prices rise. Tom Taulli suggests, as I do, that you ignore it, calling the whole outfit complicated and vague.
Which leads to my own modest proposal. Split the whole thing up. Give me a cloud company, a power company, a renewables outfit and a healthcare company. Let the healthcare outfit keep the Boston office and move the others far away from Jeff Immelt.
It’s time for GE as we know it to die.
Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.