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By The Economist (Spain)
In June, General Electric left the Dow after more than 100 years as part of the selective American. At that time, the electrical titles evolved around $ 13 and it seemed like it was hard to worsen the situation.
However, it took only five months for the market to prove that this assumption was incorrect. 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 that the shares still do not reflect the situation of the company despite a fall of 74% since May. of 2016.
On Monday, the company's shares lost $ 8 after new CEO Larry Culp told CNBC in an interview that he felt "urgent" to reduce his debt and He would do it by selling assets.
This is only the last blow to society, which It is close to the 2009 lows. At the beginning of the millennium, the public service was ranked as the highest-valued company in the world, reaching a capitalization of 600,000 million US dollars. Now this figure has been reduced to less than 75 billion US dollars, compared to more than 300,000 million US dollars worth only two and a half years ago. So things, from its historic highs, the company's shares fall 86%.
Jack Welch is the man who catapulted General Electric to the summit. In his two decades as CEO of the company its value went from $ 13 billion to more than $ 400 billion. A very different way from the one that followed it since its release from electricity.
According to Bloomberg data, the one who bought the shares of the company on September 7, 2001, the day he was replaced by Jeff Immelt as CEO and chairman, will have suffered 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almost 16 years at the helm of the company, Jeff Immelt was replaced in August 2017 by John Flannery, who has just been replaced by Lawrence Culp.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 faced by the new CEO?
According to FactSet data, the company has accumulated net debt of nearly $ 100,000,000. 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 – he currently has an A2 at Moody's and a BBB + at S & P – and, at one point, a debt / EBITDA ratio of less than 2.5. management does not expect to achieve this goal by 2020. So, the deleveraging rate seems to have slowed down, "says RBC Capital Markets.
One of the measures taken by the new CEO is to further reduce the dividend of the company. Specifically, it will distribute 4 cents per share in 2019, up from 48 cents currently. This assumes an almost anecdotal profitability 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 which can only acquire securities distributing dividends.
"This reduction allows the company to protect itself against forced sales that would involve a dividend suspension, while allowing it to save about US $ 3.9 billion a year," said 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 reduced dividend to try to be assimilated. In January, General Electric warned that the US regulator (SEC) was studying the accounts of its Energy division and an insurance portfolio that would result in a charge of 6.2 billion US dollars. Now the company has acknowledged that the SEC has extended its investigation to the extraordinary expense of 22 000 million US dollars for its energy division.
So things, General Electric's results in the last quarter were much weaker than expected. Adjusted earnings per share is $ 0.14, down 30% from analysts' estimates while billing dropped by 4%. In addition, without adjusting the results, the company suffered a loss of $ 2.63 per security.
According to analysts, aviation is the only company that actually manages to sustain the company's results, while units in the energy, renewable energy and oil and gas sectors are not in able to get back on track. "You see the same dynamics as in previous quarters.
This includes significantly lower energy and renewable energy 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 bad and not as safe as the bulls think and we do not think aviation can sustain this kind of results, "he told JP Morgan.
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