Faltering General Electric


GE Capital continues to haunt 

General Electric (GE), $135.6 billion Massachusetts-based global digital industrial company, has caused nothing but a disappointment to its shareholders not only in recent years (One year: -44.5% total losses) but also in the past decade (Ten year: -4.17%).

The 125-year-old company reported -1% revenue growth for its operations in 2017 compared to 2016 and a $6.22 billion loss for its shareholders.

Generally, most losses were from GE Capital business.

GE Capital Exit
In April 2015, GE planned to reduce the GE Capital business through sales of its assets and focus on continued investment and growth in its industrial businesses instead.

From April to December 31, 2016, GE incurred charges of $22 billion.

Due to anticipated tax benefits and gains, we do not expect total after-tax charges through the completion of the GE Capital Exit Plan to exceed our initial
$23 billion estimate.

General Electric 2016 Annual Report

Despite this expectation, GE did record another $6-7 billion loss in relation to its GE Capital in 2017. Further, GE Capital is expected to make statutory reserve contributions of approximately $15 billion over 7 years.

Meanwhile, GE’s Oil & Gas, and Aviation businesses (38% of revenue) generated healthy 34% and 4% growth. GE’s healthcare business also expanded steadily.

Contrastingly, GE’s Power business (31% of revenue) performed well below the company’s expectations and demonstrated the decline of 2%. GE’s locomotive business also exhibited a deterioration in profitability in 2017.

“In the fourth quarter, EPS was at the low-end of guidance, excluding insurance-related items, U.S. tax reform, and industrial portfolio actions. Cash performance was above expectations and our visibility and execution on cash is improving. Aviation and Healthcare had strong performances in the quarter. Power was down significantly and we expect market challenges to continue. Our results this quarter demonstrate some of the early progress we are seeing from our key initiatives. The team is focused on operational execution, capital allocation and deep cost reduction to position us for continued improvement in 2018.”

GE Chairman and CEO John Flannery

GE had $82 billion in cash, $134.6 billion in debt, and $64 billion in book value for the period.

In the past three years, GE generated $19 billion in free cash flow and reduced its financing activities by $182 billion.

With significant debt and declining operations, I arrived a much conservative $7/share (vs. ~$15 at the time of writing, 2/4/2018). GE is a pass.

Disclosure: I have GE shares.

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