General Electric Company (NYSE:GE) will open lower today after fourth-quarter earnings missed analyst estimates on revenue and only matched expectations on earnings. The bull case for GE stock, unfortunately, continues to wither.
Revenue for the quarter came in at $33.1 billion, against expectations of $33.7 billion. Net earnings came in at $3.5 billion (40 cents per share). For all of 2016, General Electric had earnings of $8.2 billion ($1 per share) and revenues of $123.7 billion.
Naturally, the company accentuated the positive in its earnings release.
On a non-GAAP basis, industrial earnings came in at $4.1 billion (46 cents per share), which was in line with analyst estimates. Total revenues were up 5% over 2015 and industrial margins for the quarter were 17.3%, again on a non-GAAP basis. The quarterly dividend of 24 cents per share was maintained.
Traders, however, were not fooled. The stock fell in premarket trading, and while it wasn’t the disaster of last January — when shares fell nearly 10% after a disappointment — the day is early, and this report could have tremors that extend well into the future.
We Expected More From General Electric
Industrial companies including General Electric had been rising since the election on the expectation that President-elect Donald Trump would support U.S. production. GE stock was down to $28.44 on Nov. 4, but got to $31.88 by Dec. 23.
Still some analysts, including me, have recently given up on the stock. I wrote early in January that it may be time for investors (including this one) to give up on CEO Jeff Immelt. In fact, I sold my own shares of GE shortly afterward.
Over 16 years, Immelt has gradually transformed the company from the financial and entertainment conglomerate built by Jack Welch — which delivered immense capital gains and numerous stock splits during the 1990s — into a stodgy heavy industry company that can maintain a dividend but can do little else for shareholders.
GE’s biggest unit today is its oil and gas unit, which employs 40,000 people and recently announced it would merge assets with Baker Hughes Incorporated (NYSE:BHI) to create the world’s second-largest oil and gas extraction company. BHI next reports earnings on Jan. 26. When the merger is completed in mid-year, General Electric will own 62% of the “new” Baker Hughes, and its results will be reported on GE’s balance sheet.
Jim Cramer recently claimed that GE stock remains a great long-term holding, and investors can own it over five years. But that only makes sense if you believe an oil boom is coming.
I do not believe that.
An Oily Succession for GE Stock
General Electric has maintained its position on the Dow Jones Industrial Average since its inception in the 19th century by continuing reinvention across the long reigns of just 9 chairmen. Welch was chair for 20 years, and before him Reginald Jones took nine years to turn GE into a consumer electronics company.
Those looking for change should now be looking to an Immelt successor. He recently turned 61, and Welch retired at age 65. Some reporters are already writing his corporate obituary, saying that James McNerney, who left after being passed over for Immelt by Welch, did much better as head of Boeing Co (NYSE:BA).
Welch spent seven years picking Immelt, but there is no indication Immelt is doing the same. The present betting favorite is Lorenzo Simonelli, an Italian who heads the oil and gas unit and who is in his early 40s.
For an investor, however, waiting on Immelt to relinquish power may be like Samuel Beckett’s Waiting for Godot.
As theater-goers recall, Godot never showed up.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.
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