General Electric: Zombieland

ft.com

“We just need to go be boring for a while.” That was newish General Electric chief executive John Flannery explaining a few months ago what a well-functioning GE would look like. The once-admired US company has seen a horror show of earnings restatements, corporate governance failures, and billion-dollar charges. The shares are down more than 50 per cent in the past two years, an inexplicable result given strong global economic growth. On Friday, however, Mr Flannery reported a mixed but refreshingly unsurprising picture. With no new skeletons exposed, GE shares jumped 4 per cent. Mr Flannery can only get by on dullness for so long: a decision about a GE break-up looms.  GE is an industrial conglomerate, that is meant to capitalise on an urbanising world thanks to superior management. The results of its sectoral bets have been uneven, as Friday’s results demonstrated. GE’s jet engine and healthcare equipment units had strong quarters. But GE’s gas turbine business, which includes the $10bn acquisition of Alstom, continues to be a mess. Renewable energy is supplanting traditional power plants. In the GE power segment, operating profits were down nearly 40 per cent. GE Power, a separate oil and gas group and GE Capital are all in such poor shape that free cash flow for the quarter was actually a deficit of $1.7bn (though, remarkably, that was an improvement of $1.1bn). GE set aside $1.5bn for an expected settlement with the Department of Justice over subprime mortgages. This charge was expected. But it shows how GE Capital problems continue to lurk. Mr Flannery has for now succeeded in moving GE from crisis to a steady, some would say zombie, state. The company plans to sell assets with $20bn in revenue deemed non-core, a continuation of portfolio trimming that has gone on for years. The company’s stabilisation, however, should not be an excuse to abandon the break-up option. This, ultimately, may be the galvanic shock needed to return GE businesses fully to the land of the living.

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