GE - General Electric

[Viking]

The lesson for me continues to be buy quality companies when they are out of favour. And stay way from bad managment or businesses that are in decline.

[rb]

Sad, but true GEmisntneven cheap after losing so much of its market cap.  You can buy a fairly comparable company SIEGY for basically the same valuation, but without any of the headaches.

Not quite. Siemens lacks an incredibly good aviation division.

 

I know  . they don’t have an aviation unit, but they do have. power unit (struggling too), a health care unit (partly spun off) and a very good automation and software business with annuity like attributes. While the engine aviation is a good business, it does have a significant drawback of undergoing multiyear ebbs and flows in FCF, which right for GE is inconviently is in an ebb cycle.

Sure, ebbs and flows and all that but jet engines are an incredibly profitable business. On top of that GE happens to be really good at it.

[Spekulatius]

The lesson for me continues to be buy quality companies when they are out of favour. And stay way from bad managment or businesses that are in decline.

 

GE‘s Business as a whole isn’t in decline- it’s just that GE‘s Balance sheet, accounting and management are problematic.

[Gamecock-YT]

And per the FT, Flannery is out. 14 months into the job. Wow.

 

Mr Flannery is being replaced by Larry Culp, who had great success as chief executive of the manufacturing group Danaher and was appointed GE’s lead independent director in June.

 

https://www.ft.com/content/9af63ce0-c56a-11e8-8670-c5353379f7c2

[fareastwarriors]

The CEO behind General Electric's health unit on cutting ties from struggling parent GE

 

https://www.cnbc.com/2018/09/29/meet-kieran-murphy-ge-healthcares-straight-talking-dealmaking-ceo.html

[peterHK]

The problem for Mr. Culp is that DHR was short cycle, had a pristine balance sheet, low dividend payout etc. whereas GE is long cycle, is cutting R&D, has a broken balance sheet, and trades at 26x FCF.

 

I think there is likely to be a dividend cut, equity recap etc. and that once those are done, he can really get the fixing underway.

[DTEJD1997]

Hey all:

 

I presume that GE still has investment grade debt, but at the lowest level?

 

If I were in charge of GE, one of the 1st things I would do is slash the dividend by 75%+.  I would still paying out at least $.01/share per quarter though.  I would then "draw a line" that the dividend gets reduced NO MORE...and that once things get better (balance sheet & earnings) I would then try to slowly increase it.

 

Mid to high level management would also get decimated & shaken up.

 

Costs (SG&A) would need to come down.  Review all supplier relationships & prices.

 

Focus on the balance sheet...prune assets...shore up pension(s).

 

Finally, go to customers and let them know of the "new" GE, and assuage them that quality will be maintained or even improved.

 

Decades of mismanagement are not going to be fixed in a handful of quarters...maybe 3-5 years if thing go well.

[gfp]

You’re Hired!  Culp was moving too slow

 

Hey all:

 

I presume that GE still has investment grade debt, but at the lowest level?

 

If I were in charge of GE, one of the 1st things I would do is slash the dividend by 75%+.  I would still paying out at least $.01/share per quarter though.  I would then "draw a line" that the dividend gets reduced NO MORE...and that once things get better (balance sheet & earnings) I would then try to slowly increase it.

 

Mid to high level management would also get decimated & shaken up.

 

Costs (SG&A) would need to come down.  Review all supplier relationships & prices.

 

Focus on the balance sheet...prune assets...shore up pension(s).

 

Finally, go to customers and let them know of the "new" GE, and assuage them that quality will be maintained or even improved.

 

Decades of mismanagement are not going to be fixed in a handful of quarters...maybe 3-5 years if thing go well.

[Spekulatius]

The problem for Mr. Culp is that DHR was short cycle, had a pristine balance sheet, low dividend payout etc. whereas GE is long cycle, is cutting R&D, has a broken balance sheet, and trades at 26x FCF.

 

I think there is likely to be a dividend cut, equity recap etc. and that once those are done, he can really get the fixing underway.

 

Yes, this is exactly my thinking. There is no painless way to fix this. I would not be surprised if Warren gets a call in his bathtub. It has happened before...

[Guest longinvestor]

I agree with other posters about the challenges Culp faces running GE versus DHR. Being an ex-DHR, my thoughts are that Culp will transform the GE portfolio a decade hence; shedding businesses, growing / adding platforms etc. This is exactly what he did at DHR. Old line industrials (think tools) etc paved the way for dental, medical, test & measurement etc. Corporate GE will be pruned to the bone, DHR is similar to Berkshire Hathaway in this regard. Businesses are locally run. I also expect that the product brands (water)will be kept separate from the stock brand (oil). This is DHR's secret sauce. And a giant mistake at GE. Customers don't care about your big and hairy chest. The key question is whether there is light at the end of the tunnel for GE? 

[ValueMaven]

I think there is...everyone talks about his clean canvas that he had to work with at DHR...but from a valuation perspective, maybe a more complex situation will show his skill-set?  I bought some the day the debt was downgrade.  It's a very interesting situation.

 

'Corporate GE will be pruned to the bone, DHR is similar to Berkshire Hathaway in this regard' -- WOW...so interesting!!

[maxthetrade]

In the latest edition of Graham & Doddsville is a truly excellent interview with Steve Tusa, the analyst who called the GE mess in 2016:

https://www8.gsb.columbia.edu/valueinvesting/sites/valueinvesting/files/Graham%20%26%20Doddsville_Issue%2034_v22.pdf

 

 

[peterHK]

In the latest edition of Graham & Doddsville is a truly excellent interview with Steve Tusa, the analyst who called the GE mess in 2016:

https://www8.gsb.columbia.edu/valueinvesting/sites/valueinvesting/files/Graham%20%26%20Doddsville_Issue%2034_v22.pdf

 

He's the best sell-side analyst I've ever read work from. His GE call was amazingly well researched.

[peterHK]

Closing my short this AM. Was a good performer.

 

I think this quarter shows how terrible things are in the core GE business (namely Power) without even considering the financial issues they have.

 

That being said I think Culp did exactly the right thing in slashing the dividend to retain the cash, recognizing that if they can free themselves from the shackles of debt and pension liabilities around their necks without financial engineering, that's a big step forward. That being said, I think anyone holding from the $25-30 range has just suffered effectively a permanent loss of capital as it's going to take so long to reverse the freighter that is GE, meanwhile other companies are compounding value so you're missing out if you own GE IMO.

 

I think he also recognizes that the culture at GE is rotten, at least one hopes so based on his comments on increasing accountability and shuffling around Power.

 

I still think the stock is dead for years as Power is still an incredibly challenging business. If they ever spun out their aerospace division I'd be a buyer, but I doubt they'd do that.

[DTEJD1997]

You’re Hired!  Culp was moving too slow

 

Hey all:

 

I presume that GE still has investment grade debt, but at the lowest level?

 

If I were in charge of GE, one of the 1st things I would do is slash the dividend by 75%+.  I would still paying out at least $.01/share per quarter though.  I would then "draw a line" that the dividend gets reduced NO MORE...and that once things get better (balance sheet & earnings) I would then try to slowly increase it.

 

Mid to high level management would also get decimated & shaken up.

 

Costs (SG&A) would need to come down.  Review all supplier relationships & prices.

 

Focus on the balance sheet...prune assets...shore up pension(s).

 

Finally, go to customers and let them know of the "new" GE, and assuage them that quality will be maintained or even improved.

 

Decades of mismanagement are not going to be fixed in a handful of quarters...maybe 3-5 years if thing go well.

 

I'll send GE a bill for the management consulting!  I see they took my advice and slashed the dividend to $.01/share this AM.

 

I don't think GE is going to go out of business, but a lot of people have lost a LOT of money that is essentially NEVER coming back...a real shame.

[walkie518]

You’re Hired!  Culp was moving too slow

 

Hey all:

 

I presume that GE still has investment grade debt, but at the lowest level?

 

If I were in charge of GE, one of the 1st things I would do is slash the dividend by 75%+.  I would still paying out at least $.01/share per quarter though.  I would then "draw a line" that the dividend gets reduced NO MORE...and that once things get better (balance sheet & earnings) I would then try to slowly increase it.

 

Mid to high level management would also get decimated & shaken up.

 

Costs (SG&A) would need to come down.  Review all supplier relationships & prices.

 

Focus on the balance sheet...prune assets...shore up pension(s).

 

Finally, go to customers and let them know of the "new" GE, and assuage them that quality will be maintained or even improved.

 

Decades of mismanagement are not going to be fixed in a handful of quarters...maybe 3-5 years if thing go well.

 

I'll send GE a bill for the management consulting!  I see they took my advice and slashed the dividend to $.01/share this AM.

 

I don't think GE is going to go out of business, but a lot of people have lost a LOT of money that is essentially NEVER coming back...a real shame.

the div cut is very good news... this shows that Culp wants to do the right thing...though at this rate, I'm not sure why he kept the dividend at all?

 

this will save a lot of money for mgmt to right the ship...

[DTEJD1997]

You’re Hired!  Culp was moving too slow

 

Hey all:

 

I presume that GE still has investment grade debt, but at the lowest level?

 

If I were in charge of GE, one of the 1st things I would do is slash the dividend by 75%+.  I would still paying out at least $.01/share per quarter though.  I would then "draw a line" that the dividend gets reduced NO MORE...and that once things get better (balance sheet & earnings) I would then try to slowly increase it.

 

Mid to high level management would also get decimated & shaken up.

 

Costs (SG&A) would need to come down.  Review all supplier relationships & prices.

 

Focus on the balance sheet...prune assets...shore up pension(s).

 

Finally, go to customers and let them know of the "new" GE, and assuage them that quality will be maintained or even improved.

 

Decades of mismanagement are not going to be fixed in a handful of quarters...maybe 3-5 years if thing go well.

 

I'll send GE a bill for the management consulting!  I see they took my advice and slashed the dividend to $.01/share this AM.

 

I don't think GE is going to go out of business, but a lot of people have lost a LOT of money that is essentially NEVER coming back...a real shame.

the div cut is very good news... this shows that Culp wants to do the right thing...though at this rate, I'm not sure why he kept the dividend at all?

 

this will save a lot of money for mgmt to right the ship...

 

Culp cut the dividend down to $.01/share so as not to create a forced selling frenzy.

 

For you see, there are funds that are REQUIRED to hold dividend paying stocks.  At $.01/share, GE is still and "income" investment...there are also individual shareholders that think like this.

 

Had GE eliminated the dividend entirely, there would have been a LOT of forced sales.

 

Even at today's quote, an argument can be made that GE is still incredibly expensive...

[walkie518]

You’re Hired!  Culp was moving too slow

 

Hey all:

 

I presume that GE still has investment grade debt, but at the lowest level?

 

If I were in charge of GE, one of the 1st things I would do is slash the dividend by 75%+.  I would still paying out at least $.01/share per quarter though.  I would then "draw a line" that the dividend gets reduced NO MORE...and that once things get better (balance sheet & earnings) I would then try to slowly increase it.

 

Mid to high level management would also get decimated & shaken up.

 

Costs (SG&A) would need to come down.  Review all supplier relationships & prices.

 

Focus on the balance sheet...prune assets...shore up pension(s).

 

Finally, go to customers and let them know of the "new" GE, and assuage them that quality will be maintained or even improved.

 

Decades of mismanagement are not going to be fixed in a handful of quarters...maybe 3-5 years if thing go well.

 

I'll send GE a bill for the management consulting!  I see they took my advice and slashed the dividend to $.01/share this AM.

 

I don't think GE is going to go out of business, but a lot of people have lost a LOT of money that is essentially NEVER coming back...a real shame.

the div cut is very good news... this shows that Culp wants to do the right thing...though at this rate, I'm not sure why he kept the dividend at all?

 

this will save a lot of money for mgmt to right the ship...

 

Culp cut the dividend down to $.01/share so as not to create a forced selling frenzy.

 

For you see, there are funds that are REQUIRED to hold dividend paying stocks.  At $.01/share, GE is still and "income" investment...there are also individual shareholders that think like this.

 

Had GE eliminated the dividend entirely, there would have been a LOT of forced sales.

 

Even at today's quote, an argument can be made that GE is still incredibly expensive...

 

good point re: funds

 

and yes, GE could still be quite expensive, but this is certainly a step in the right direction

 

it'd be great if GE cleaned up it's reporting too...I'd like to see more transparency among the divisions as aviation and healthcare have likely subsidized everything else and these figures get hidden in the "corporate" segment

 

[LongHaul]

Character always matters.

[Spekulatius]

Anyone want to bet if Warren gets a call from GE’s CEO again?

[rb]

He may call. But I doubt anything will come of it.

[Viking]

How can a company drop from $250 billion market cap to $85 billion in a little over 2 years (with essentially the same business) and for there not to be some accounting fraud going on. GE is a great example of how untrustworthy financial statements can be.

 

It looks like it will take multiple CEO’s to get the financial reporting corrected to the point where average investors can understand and trust what they are reading. Pretty crazy whar GE was able to get away with for so many years.

 

Do you trust management? Important question to ask before investing in a company.

Is the financial reporting done to help shareholders understand and properly value the business? Important second question to ask.

[Foreign Tuffett]

General Electric's "no bad news culture" papered over problems for 20 years. GE's horrible capital allocation resulted in the Alstom acquisition, which was basically America's way of balancing the karmic books after underpaying for the Louisiana Purchase 200 years ago. GE's stock has melted down.

 

In light of all this, Business Insider decided to publish this puff piece on a former GE exec:

 

https://www.businessinsider.com/ask-boss-for-help-beth-comstock-2018-10

[treasurehunt]

In light of all this, Business Insider decided to publish this puff piece on a former GE exec:

 

https://www.businessinsider.com/ask-boss-for-help-beth-comstock-2018-10

 

Must be nice to be CEO. In what other profession can one fail so utterly and miserably at his job, bring a century old institution to its knees, make tens or even hundreds of millions of dollars for presiding over the destruction and then have such an article written about the sage advice he dispensed?

 

I guess there is "Politician". I am eagerly waiting for a fawning article on the motivational techniques of Kim Jong Un.

[TwoCitiesCapital]

General Electric's "no bad news culture" papered over problems for 20 years. GE's horrible capital allocation resulted in the Alstom acquisition, which was basically America's way of balancing the karmic books after underpaying for the Louisiana Purchase 200 years ago. GE's stock has melted down.

 

In light of all this, Business Insider decided to publish this puff piece on a former GE exec:

 

https://www.businessinsider.com/ask-boss-for-help-beth-comstock-2018-10

 

Lol!

 

I wonder what the karmic payback for Alaska will look like?