Cabot Undervalued Stocks Advisory Chief Analyst Crista Huff was interviewed by Boston Public Radio station WBUR on General Electric’s big earnings miss.
To read on the WBUR website or to listen to the broadcast, click here.
GE Sees Biggest Quarterly Earnings Drop In 17 Years
By Bruce Gellerman
General Electric released its much-anticipated third quarter earnings on Friday. It was one of those good news, then really, really bad news reports.
On the up side: General Electric’s new CEO John Flannery told stock analysts in a conference call Friday morning that revenue rose 14 percent for the quarter. But that was due to the acquisition.
On the down side: Earnings per share sank like a stone — barely half what analysts expected. It was the company’s biggest quarterly disappointment in at least the last 17 years. And perhaps worse, cash flow fell almost 80 percent from a year ago.
Flannery couldn’t sugarcoat the quarter.
“We’re deeply disappointed in today’s results,” he said. “They’re unacceptable. That is crystal clear to the team here. We fundamentally have a collection of good franchises. We have to run them better.”
Flannery said GE’s deep dive into its global operations in 180 countries, which started when he took over as CEO three months ago, would continue.
“We need to make some major changes with urgency and a depth of purpose,” he said. “Everything is on the table, and there are no sacred cows.”
GE announced plans to sell off $20 billion in company business in a year or two to make GE more manageable. Flannery didn’t spell out what would go but says he’s taking aggressive action on costs. And corporate changes won’t be limited to financial cutting.
“I’m focusing heavily on the culture of the company,” he said. “Our culture needs to be driven by mutual candor and intense execution, and accountability that must come with that.”
Corporate heads have already started rolling in the Boston headquarters. Three senior officials were replaced last week, and the company is going to change employee compensation and incentives programs.
Flannery calls the actions “a self-help story.”
Corporate analyst Crista Huff writes a stock market newsletter for Salem-based Cabot Wealth Network. She appreciates that Flannery called the company’s cash flow “horrible,” but she says honesty goes only so far.
“This is a big disaster for the stock,” she said. “Most likely the dividend will need to be cut because the essential problem right now is cash flow.”
GE has continuously paid dividends since 1899. But without enough cash it can either cut the dividend or taken on debt to fund it.
Huff expects a cut. But like McDonald’s and Microsoft — companies that suffered greatly in recent years and are now soaring — Huff believes Flannery can turn GE around. It’ll just take time.
“I would never sit here and say none should ever invest in GE, but I wouldn’t invest in it today,” she said. “And anybody who thinks they should invest in GE today — that’s called catching a falling knife, and that’s a bad idea.”
GE will announce its plans for the dividend and specific long term strategy next month.