Since becoming General Electric (NYSE:GE) CEO in October 2018, Larry Culp has made the company a favorite of turnaround lovers.
If you picked up some shares one year ago, you’re sitting on a gain of 54%. But it’s all a matter of timing. If you bought the day Culp joined, you’re still down 14%.
From here, everything depends on execution.
Culp’s hardest decision may have been to let General Electric’s biopharma unit go to his former employer, Danaher (NYSE:DHR). The cash is desperately needed to firm up the balance sheet, which still had $76 billion of debt on it, against a market capitalization of $94 billion, in September.
As I wrote in July, those numbers understate the case. The company also has $74 billion of “other liabilities” — pensions and risks from old long-term care policies — to deal with.
The pension freeze helps with the former. The latter is a 25-year old legacy from former CEO Jack Welch, who took on re-insurance for long-term care policies before the cost of nursing care became apparent. Activists want Welch to turn in his retirement payout, as well as Immelt, whom I consider the greatest destroyer of shareholder value the world has ever known. It ain’t happening.
The New Tone
But this is only tone. General Electric under Culp remains much as it was under Immelt and his successor, John Flannery, an industrial machine company. GE Power remains a drag on results, although the company now makes more from renewable energy equipment like wind turbines. Healthcare is mostly big machines. Boeing (NYSE:BA) remains a drag on GE Aviation, and GE Capital can no longer soften the blows.
For the third quarter, General Electric reported a loss of nearly $6 billion, 69 cents per share, on revenues of $23.4 billion. Culp emphasized that losses from continuing operations were just 8 cents per share. He showed $650 million in industrial free cash flow. He also pointed to a backlog of orders that now totals $386 billion, mostly for jet engines and industrial turbines. Since then the shares are up 9%, against a 2.5% gain for the average S&P 500 stock.
Not everyone is convinced. JPMorgan Chase (NYSE:JPM) analyst Stephen Tusa, who saw the Immelt disaster coming and may wear the label “GE Bear” to his grave, says General Electric is still missing targets set only in March. He believes numbers look good only because of restructured spending.
The Bottom Line on General Electric
General Electric remains an industrial goods company. Industrial goods are not a great business to be in. The company continues to struggle with enormous debt. The amount it will owe on those long-term care policies remains uncertain.
I continue to wish Culp well, but from the sidelines. General Electric is, at best, a speculation. If you buy shares today, you’re betting it can generate big profits from industrial revenue, and that it can grow. Hope is still not a plan.
Dana Blankenhorn is a financial and technology journalist. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available 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 shares in JPM.