BOSTON – General Electric has embarked on a sweeping makeover aimed at returning the iconic company to greatness. In 2016, the company moved its headquarters from Fairfield to Boston, although the company still thousands of employees in the Connecticut.
Wall Street loved GE’s decision to break itself apart by getting rid of its health care, oil and gas and locomotive businesses. The beaten-down stock enjoyed its best day in three years as GE promised to simplify itself and clean up the debt-riddled balance sheet.
But these bold steps to further shrink GE’s empire mean that the remaining company will be even more exposed to trouble in its biggest problem areas: power and banking.
Fresh evidence of GE’s power problems will get revealed on Friday, when the recently ousted member of the Dow reports earnings. Expectations are low: GE has lost one-fifth of its value this year, on the heels of a crash of nearly 50% last year.
GE Power, which makes and services gas and steam turbines, has been crushed by the rapid rise of renewable energy. Orders and prices for fossil fuel equipment have plunged, forcing GE to lay off 12,000 workers.
Cowen & Co. analyst Gautam Khanna predicted that GE will disclose a 65% plunge in earnings from power. The company’s renewable energy division, which isn’t being sold off, is too small to make a dent in the overall bottom line.
“Power remains challenged (to put it mildly), with little hope of a near-term recovery,” Deutsche Bank analyst Nicole DeBlase wrote to clients last week.
That’s a problem because GE Power isn’t going anywhere. It’ll remain the largest division by revenue after GE completes its transformation. And troubles at GE Power will no longer be masked by strength from one of the company’s crown jewels: the health care juggernaut that is being spun off.
“GE’s recently announced break-up places a ceiling on the stock until the power segment’s turnaround effort gains more traction,” Khanna wrote.
The bright spot at GE is undoubtedly its soaring aviation business, which makes and services jet engines. Sales are expected to rise, driven by strong orders for GE’s LEAP engine.
The biggest mystery surrounds GE Capital, the financial arm that nearly destroyed the company a decade ago.
GE Capital shocked Wall Street in January by disclosing a $6.2 billion loss in the long-term care insurance business. The news caught regulators off guard as well, prompting an SEC investigation. Now Flannery is trying to get rid of the troubled insurance portfolio as well.
GE could also offer more details about the federal investigation into WMC, its subprime mortgage unit. GE has set aside $1.5 billion to cover potential losses and it recently warned it could put WMC into bankruptcy.
Will more shoes drop at GE?