GE shares fall as profit
slumps, investors await new CEO's targets
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[July 22, 2017]
By Alwyn Scott
(Reuters) - General Electric Co's <GE.N>
shares dropped sharply on Friday after it posted a 59-percent decline in
second-quarter profit and put off an expected cut to 2018 earnings
targets until November, when new CEO John Flannery will be four months
into his job.
The maker of power plants, jet engines, medical scanners and other
industrial equipment said profit and sales declines largely reflected
sale of its appliances business.
It beat analyst expectations on adjusted profit, but cash flow was weak
and GE said full-year profit and cash flow will be at the low end of its
GE also said it would update its 2018 earnings target of $2 a share in
November, later than analysts had expected. Analyst consensus 2018
estimate is $1.73, according to Thomson Reuters I/B/E/S, already
suggesting a significant cut.
The length and scope of the review raised concern, since GE has just
come through major shifts in its portfolio.
"It's discouraging that we're going to wait again for the company to
perform as we wait for the new CEO to review everything," said Jim
Corridore, analyst at research firm CFRA, which cut GE shares to "hold"
after Friday's results.
Incoming CEO Flannery acknowledged on a conference call that his review
would take time, but said it had not altered GE's 2017 outlook.
Still, the stock could be in "in a state of limbo" until the review is
finished, Deane Dray, analyst at RBC Capital Markets, said in a note.
GE's cash flow was below expectations and also weighed on the stock,
said Jeff Windau, analyst at Edward Jones. "People want to get the
answers sooner" to Flannery's review.
Shares were down 3 percent at $25.87 in mid-morning trading after
earlier hitting a 2-year low.
GE faced a "slow-growth, volatile environment" in the quarter, Chief
Executive Jeff Immelt said in his final earnings release before his Aug.
Immelt's tenure began days before the Sept. 11, 2001, terrorist attacks
and included the 2008 financial crisis. While GE stock is 27 percent
below its price when Immelt arrived, it has more than tripled from its
nadir in 2009.
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The logo of General Electric Co. is pictured at the Global
Operations Center in San Pedro Garza Garcia, neighbouring Monterrey,
Mexico, May 12, 2017. REUTERS/Daniel Becerril/File Photo
Immelt sold off NBCUniversal, appliances and most of GE Capital. He acquired
power assets from France's Alstom <ALSO.PA>, merged GE's oil and gas business
with Baker Hughes, and moved the headquarters to Boston.
Flannery said he is "in the middle of a series of deep dives into the
businesses." He also is "taking a hard look at our corporate spending" to ensure
it contributes to earnings, and on a listening tour of investors.
GE has cut $670 million in industrial overhead costs this year, Immelt said, and
will "meet or exceed" its $1 billion target for 2017 - a goal set after
discussion with activist investor Trian Fund Management.
GE was under pressure to report strong cash flow after a weak showing in the
first quarter. Cash flow from operations totaled $3.6 billion, up from $400
million in the first quarter. The figure was down 67 percent from a year ago,
partly reflecting the loss of contributions from the appliances division.
Revenue fell 12 percent to $29.56 billion, slightly above the $29.02 billion
consensus estimate of analysts polled by Thomson Reuters I/B/E/S. GE said its
appliances sale eliminated $3.1 billion of revenue.
Net profit slumped 59 percent to $1.34 billion, or 15 cents a share, in the
quarter ended June 30, from $3.30 billion, or 36 cents a share, a year earlier.
Adjusted earnings fell 45 percent to 28 cents a share, compared with estimates
for 25 cents.
(Additional reporting by Rachit Vats in Bengaluru; Editing by Bernadette Baum
and Nick Zieminski)
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