General Electric: The Problem At Hand

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About: General Electric (GE)
by: John M. Mason

Summary

General Electric's leadership is now in the mode of having to "reassure investors."

The performance of GE CEO Larry Culp, when third-quarter earnings were reported, has been graded as "weak" and this is being transferred into a downgrading of GE's stock.

Mr. Culp may deliver over time, as his supporters claim, but it is just too bad that his reign has begun on such a sour note.

The current situation at General Electric (NYSE: GE) is exactly what I was concerned about in my two posts (here and here) over the past week or so.

The latest headline in the Financial Times (subscription required): “GE Attempts to Reassure Investors After Bearish Note Hits Stock.”

On October 23, 2018, the new leader of General Electric, Larry Culp, reported the company’s third-quarter earnings.

This was Mr. Culp’s first chance to show what he has to offer.

As I wrote in my earlier posts, the performance, unfortunately, was less than stellar.

This conclusion may be somewhat harsh, as was suggested by some people who wrote me comments, but it was my own view on the effort, given that I have done three turnarounds myself.

You only get one chance to make a first impression on the investment community.

Now, General Electric is in the game to “reassure” investors.

This is not what you would like to do after your first performance.

“Stephen Tusa, an analyst at JPMorgan who has had a consistently bearish view of GE, yesterday published a note cutting his target price for the shares from $10 to $6, and warning that the company had about $100 billion in liabilities and ‘zero’ enterprise free cash flow, even after the 92 percent cut in the dividend announced last week.”

Shares of GE ended the day at $8.58, down 5.7 percent for the day. The price of GE's stock is down more than 50 percent for the year.

The only response coming from the company yesterday was that of a spokeswoman who said, “GE is a fundamentally strong company with a sound liquidity position.”

All I can say at this point is that confidence in GE leadership is at a particularly low point.

Mr. Culp just did not provide the market with anything it needed to build up support for what he is doing. This, I think, is somewhat understandable given the fact that investors in the past had given Mr. Culp’s predecessors, Jeffrey Immelt and John Flannery, a positive response as they took over the top spot.

Those supporting Mr. Culp have said that analysts and investors need to give him a chance. He does not approach a job with “swagger” and will produce over time. His is a quieter, more humble approach to leadership, and he has produced in the past.

All well and good. Let’s hope he has the time to produce.

The problem is that a leader needs to read the situation he or she faces, and respond accordingly.

So far, Mr. Culp's initial performance has only made his early days more difficult.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.