General Electric: Culp Shows Just How Bad Things Are

Moves against GE's pensioners evidence just how desperate its financial situation has become

General Electric (NYSE:GE) CEO Larry Culp revealed just how desperate the company’s financial situation was this week by freezing pensions for 20,000 retirees.

Culp is doing more than that.  He’s offering lump sum settlements to 100,000 workers who have yet to retire, to reduce pension liabilities by $8 billion. GE will stop adding to pension funds in 2021. The company is moving workers away from defined pensions toward 401(k) plans, offering to put 3% of pay into such plans and match contributions up to 8%.

The stock reacted positively to the news, which will be funded by cash GE has in its coffers from divestitures. But the move also reveals just how dire the company’s financial situation had become.

Culp’s Plan

I’ve written before about Culp’s plan and how GE got into its present mess.

In Culp’s first year at the helm, GE has announced plans to sell its biopharma unit to Danaher (NYSE:DHR), which the CEO previously led. He is exiting GE’s investment in Baker Hughes, a GE Company (NYSE:BHGE), which is in the process of dropping GE’s name.

Long-term debt was down to $90 billion in June. The October 9 market cap was $78 billion. But there were also $56 billion in “other long-term liabilities,” including pension obligations, on the books last summer. That is the target of his latest move.

Beyond cutting pensions, Culp is hiring a new executive team from the outside, hoping new management can fix what’s wrong with the company. If he can turn the company around, Culp stands to make $300 million in stock incentives.

Culp has immense institutional support for his moves. He has drawn wide praise from Wall Street. Fortune even chose to attack whistleblower Harry Markopoulos, who pointed out the company’s re-insurance of long-term care policies under Jack Welch, and idiotic moves made by hand-picked successor Jeff Immelt. Fortune placed his charges against Culp’s record and concluded that calling GE “worse than Madoff” was overblown.

I personally believe Immelt was worse than Madoff. He single-handedly destroyed a great company in an egotistic effort to prove himself a great man. Under Immelt GE sold off its money-making GE Finance unit piece-by-piece and bought money pits like Alstom, which Immelt called its best deal in a century. GE Power is still the anchor holding the whole company down, with revenue down 22% year over year in its second quarter report. There’s also no longer a finance back-up to corporate mistakes.

What is Working

In its second quarter report GE guided to mid-single digit growth and earnings per share of 55-65 cents. Parts of General Electric are working well. Others are expected to get better very soon.

Renewable energy orders rose 35% year over year in the June quarter, as its wind turbines remain popular. The healthcare segment is still bringing 18% of revenue to the net income line. GE Aviation should improve once Boeing (NYSE:BA) can get out of its 737-MAX ditch.

JPMorgan (NYSE:JPM) analyst Stephen Tusa thinks GE Aviation is overvalued. To be sure, while Tusa deserves the moniker “long-time GE bear,” he’s been right in every previous bearish report.

Bottom Line on GE Stock

Wall Street considers Culp a star. GE stock today sells for less than 1 times revenue. If it hits its earnings target of 60 cents it will be selling for just 13 times earnings next year.

But this is still a speculation. Culp has spent the last year bailing out GE’s bilge and has been unable to make any moves toward growth. To buy GE today you must believe in its CEO.

I’ve been burned by the “great man” theory before.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.

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