30 rock made GE look like such a great company, here are 10 reasons it’s gone downhill
1 – Management turnover
Jeff Immelt was CEO from 2001 to 2017, and GE had succession plan where John Flannery took over in August 2017. Flannery was fired in October 2018 and replaced with the former CEO of Danaher Larry Culp. Larry Culp is the first outside executive to run GE in history.
2 – Credit rating
GE credit rating was downgraded in October 2018 after John Flannery was fired. GE’s credit rating was cut was from A to BBB+ and is only three notches about speculative, or “junk” status. Credit derivatives such as credit default spreads (CDS) are widening in bond markets.
3 – Dividend cut
New CEO Larry Culp immediately cut dividend to $0.01 per share, reducing GE’s dividend yield from over 5% to nearly zero. This is the only the third GE dividend cut since the Great Depression, once seen as a symbol of its stability. There are over 400,000 GE retirees that were negatively impacted as they relied on dividend income from GE.
4 – Capital allocation
GE has a terrible track record of capital allocation in recent years. Aside from poor acquisitions, the company spent nearly $24 billion on stock repurchases in 2016 & 2017 at nearly $29 per share, or at a price that that is NEARLY FOUR TIMES the current stock price.
5 – Financial performance
2018 will be the fourth consecutive year that GE EBITDA (Earnings Before Taxes, Interest, Depreciation & Amortization) will decline. Estimated to decline by 12% this year led by GE’s Power business, which accounts for about 25% of 2018 revenues.
6 – Bad acquisitions
GE’s poor capital allocation extends to its acquisition track record. In fact, under former CEO Jeff Immelt from 2001 to 2017, GE made 380 acquisitions at a cost of over $175 billion, with many ill-timed energy acquisitions such as Alstom in 2015.
7 – Federal investigations
The SEC and Justice Department are investigating GE’s power business for its $22 billion accounting write-down in October 2018. This follows a January 2018 announcement by the SEC that it was investigating GE’s accounting tactics and a $6.2 billion insurance loss that caught investors off guard.
8 – Wall Street bears piling on
Sales sold short, betting against GE’s stock price, has risen nearly 30% over the past 2 months despite a 40%+ decline in the share price.
9 – GE Capital
GE Capital disclosed a surprise $15 billion reserve shortfall related to a legacy long-term-care insurance business, and concerns about additional funding shortages are growing.
10 – Liquidity is not concern
GE has access to liquidity with cash on its balance sheet and nearly $40 billion in credit lines while it deleverages its balance sheet through asset sales.