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By El Economista (Spain)
Last June, General Electric left the Dow Jones after more than 100 years as part of the US selection. At that time, the electrical titles were moving around 13 dollars and it seemed like it was hard to worsen the situation.
However, it took only five months for the market to prove that this badumption was false. Since its exit from the industrial index, the company has plunged 34% and the latest blow by the company was launched by JP Morgan, who said the shares still do not reflect the situation of the company despite a drop of 74% since May. 2016.
On Monday, the company's shares lost $ 8 after new CEO Larry Culp said in an interview with CNBC that he felt "the urgency" of to reduce its debt and that it would do it through
This is only the last blow to society, which quotes near the minimum of 2009. At the beginning of the millennium, the business of utilities positioned itself as the company with the highest market value in the world. , affecting the capitalization of 600 000 million US dollars. However, this figure was reduced to less than 75 billion US dollars against more than 300 000 million US dollars worth two and a half years ago. Thus, from its historical highs, the company's shares fell by 86% .
Jack Welch was the man who had catapulted General Electric to the summit. During his two decades as CEO of the company his value went from 13,000 million US dollars to more than 400,000 million US dollars. A very different path from the one that followed it since its release from electricity.
According to Bloomberg data, the person who bought the shares of the company on September 7, 2001, when he was replaced by Jeff Immelt as CEO and Chairman, will have incurred losses of 63%, including dividends. . This figure contrasts even more with the performance of the S & P 500 since then: it climbed 260% over the same period. After almost 16 years at the helm of the company, Jeff Immelt was replaced in August 2017 by John Flannery, who has just been replaced by Lawrence Culp. But what are the problems of the new CEO?
According to FactSet data, the company accumulates a net debt of about $ 100 billion. The multinational was set to reach a debt / EBITDA ratio of 2.5 times in 2020. However, with the arrival of Lawrence Culp on October 1, this goal seems to be unmatched. remove. "Culp's financial priorities include an A rating – it currently has an A2 in Moody's and a BBB + in S & P – and, at one point, its debt / EBITDA ratio is less than 2 5 times, we have seen that management did not expect to reach this goal by 2020. Thus, the deleveraging rate seems to have slowed down, "says RBC Capital Markets.
One of the measures taken by the new CEO is to reduce again, the dividend of the company. More specifically, it will distribute 4 cents per share in 2019, against 48 cents currently. This badumes an almost anecdotal return of 0.5% and experts believe that the dividend has not been totally canceled to be able to belong to the universe of these funds that can only acquire dividend paying securities.
"This reduction allows the company to protect against forced sales that would involve a dividend suspension, while saving you about US $ 3.9 billion a year," says RBC Capital Markets. Already in 2017, the company had reduced its dividend by half, but it seems that this movement is not enough.
Of course, the problems of society are not reduced to a high debt or a reduction of the dividend to try to ditto In January, General Electric had warned the US regulator (SEC) to study the accounts of its energy division and an insurance portfolio generating a charge of 6.2 billion US dollars. The company has now acknowledged that the SEC extended its investigation to an extraordinary charge of 22,000 million US dollars for its energy division.
Thus, General Electric's results in the last quarter were much weaker than expected. Adjusted earnings per share was $ 0.14, down 30% from badysts' estimates while billing decreased 4%. In addition, without adjusting for results, the company suffered losses of $ 2.63 per security.
According to badysts, the only sector that really manages to sustain the company's results is that of aviation, while, renewable energy and oil and gas can not get back on track. "We find the same dynamics as in previous quarters."
This includes significantly lower energy and renewable results than expected and a good result for aviation. Without orientation, it is difficult to judge the sustainability of each division. The energy sector is wrong and is not as close to being saved as the bulls think and we do not think aviation can sustain this kind of results, "says JP Morgan.
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