Breaking down GE's breakup

Once, General Electric sold everything from light bulbs to lighthearted drama. Now it just sells itself. What will be left? Richard Quest breaks down GE's breakup.

Posted: Jun 27, 2018 2:40 PM
Updated: Jun 27, 2018 2:40 PM

General Electric, once one of America's greatest conglomerates, is reinventing itself by getting smaller and simpler.

GE is saying goodbye to its health care, oil and gas and locomotive businesses. Years ago it shed a formidable appliance division, NBC and most of the good parts of the giant bank that nearly killed it in 2008. Even the iconic light bulb division that Thomas Edison founded is on the auction block.

What will be left? A shell of GE's former self.

Tomorrow's GE will feature a booming jet engine business as well as a small yet promising renewable energy division. But GE isn't getting rid of its two biggest problem children.

The largest remaining division will remain GE Power, a maker of power plants that's in a deep slump. And then there's GE Capital, the financial arm that's bleeding billions from insurance and subprime mortgage troubles.

"We have changed many things, but the essence of GE endures," CEO John Flannery told analysts on Tuesday. "We are on a path of rejuvenation and growth."

Wall Street cheered the long-awaited changes to GE's portfolio. GE's depressed share price spiked 8% on Tuesday, its biggest leap in three years.

"Investors simply don't want to own the conglomerate hodgepodge that GE became. That's part of their bugaboo," said Jack De Gan, chief investment officer at Harbor Advisory. After 21 years as a GE shareholder, the investment firm dumped its shares last fall.

Related: Inside the dismantling of GE

GE is trying to learn from mistakes that sparked a cash crisis, forcing a wave of asset sales. Flannery vowed to clean up GE's debt-ridden balance sheet, make the company less risky and simplify a structure that grew far too complex for everyday investors to decipher.

That won't be an easy task. By getting rid of divisions, GE will have less firepower to pay back its debt, a challenge that could be magnified should the economy stumble into a recession.

"While we applaud management's straightforward plan," Stifel analyst Robert McCarthy wrote to clients, "we remain concerned" about how GE will execute its plan and handle problems at GE Capital.

Decision-making won't come from the headquarters in Boston anymore either -- a dramatic shift for a company long known for its central management style.

"We are fundamentally inverting the company to make the business units the center of gravity," Flannery said.

Soaring jet engines

GE was a pioneer in aviation, so it's only fitting that the bright spot of the remaining company makes and fixes jet engines.

GE Aviation's technology powers two out of every three commercial flight departures around the world. The business has a long runway too, with a decades-long backlog of orders totaling $200 billion.

"The aircraft engine business is a phenomenal one," said De Gan

Power problems

Unlike in the past, GE is rearranging its portfolio to only keep businesses that fit well together. So it makes sense that Flannery decided to retain GE Power, which makes giant turbines used by power plants.

"A power turbine is effectively a jet engine that doesn't fly," Scott Davis, lead analyst at Melius Research, wrote to clients.

But GE Power is in disarray. Under former CEO Jeff Immelt, GE doubled down on fossil fuels by spending heavily to acquire the power business of Alstom. That deal left GE badly exposed to the shift away from natural gas and coal. GE has raced to shrink its power business, slashing 12,000 jobs along the way.

Flannery acknowledged that GE Power is a "turnaround story" that will take years, not quarters, to play out.

Small footprint in clean energy

The shakeup at GE has elevated the role of its renewable energy business, which is built on a large onshore wind business. GE is also making inroads into offshore wind as well as hyro power.

Holding onto renewable energy gives GE a foothold in the growth part of the industry as Americans push for cleaner fuels. But it's a tiny foothold. Renewable energy hauled in $10 billion of revenue last year, accounting for just 8% of the company's total sales.

The ghost of GE Capital

Listening to GE talk about the future, it would be easy to forget that a big chunk of it is wrapped up in GE Capital. The financial arm has been dramatically downsized over the past decade. And Flannery pledged to make it even smaller.

Yet the leftovers of GE Capital are still hogging vast amounts of money -- cash that the parent company could be using to invest in the future.

GE recently set aside $1.5 billion to cover potential losses from a federal investigation into defunct its subprime mortgage unit. And it's plowing $15 billion to stabilize losses from its long-term care insurance business, which GE is also attempting to get rid of.

"When they dismantled GE Capital, they sold the good stuff and they kept all the garbage," said De Gan.

It'll take years for GE to recover from the sins of the recent past. For now, it's clear that tomorrow's GE will likely nothing like today's.

"We have argued for the full breakup of GE and we pretty much have that," said Davis.

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 318894

Reported Deaths: 5561
CountyCasesDeaths
Marion43391855
Lake27599462
Allen18363299
Elkhart17474226
St. Joseph17071234
Hamilton13376169
Vanderburgh9839121
Tippecanoe880629
Porter844886
Johnson6556169
Hendricks6267158
Vigo618187
Monroe542850
Clark522877
Madison5153122
Delaware5014103
LaPorte474695
Kosciusko468540
Howard357977
Warrick329872
Floyd324978
Bartholomew323563
Wayne318074
Marshall308146
Cass302631
Grant282050
Noble261546
Hancock260355
Henry252837
Boone248754
Dubois242931
Dearborn222631
Jackson222534
Morgan215543
Knox189720
Shelby189556
Gibson189426
Clinton182121
DeKalb181632
Lawrence179748
Adams171022
Wabash168121
Miami166614
Daviess160144
Steuben150713
Fayette150034
Jasper147413
Montgomery146627
Harrison145524
LaGrange145031
Whitley140814
Ripley138515
Huntington130910
Decatur128243
Wells127930
Putnam127828
White127522
Clay126523
Randolph126121
Posey124116
Jefferson122916
Scott112320
Greene104653
Jay100713
Sullivan99216
Starke94021
Jennings88714
Fulton86419
Spencer8588
Perry83721
Fountain8078
Washington7837
Franklin71327
Carroll69613
Orange69028
Vermillion6444
Owen6317
Tipton58927
Parke5886
Newton56912
Rush5658
Blackford54012
Pike51619
Pulaski41115
Martin3645
Benton3553
Brown3514
Crawford3031
Union2752
Switzerland2605
Warren2542
Ohio2337
Unassigned0266

Ohio Coronavirus Cases

Data is updated nightly.

Cases: 382743

Reported Deaths: 6274
CountyCasesDeaths
Franklin51161671
Cuyahoga37222743
Hamilton30493372
Montgomery20518236
Butler15199148
Lucas14566417
Summit13933327
Stark9193206
Warren841976
Mahoning7530300
Lake710067
Lorain6690106
Clermont593651
Delaware572537
Licking564577
Trumbull5584147
Fairfield554464
Greene538066
Clark5218101
Allen494989
Marion476759
Medina471657
Wood4598107
Miami437568
Pickaway404048
Portage358972
Columbiana357698
Tuscarawas342667
Richland328539
Wayne327394
Mercer296047
Muskingum252510
Hancock245940
Ross244559
Auglaize236435
Darke232560
Erie230268
Putnam229449
Ashtabula228354
Geauga211851
Scioto200616
Union19668
Shelby194017
Lawrence193039
Athens19134
Seneca182919
Belmont170229
Madison163119
Sandusky157729
Preble156521
Huron155519
Defiance144823
Holmes140439
Logan133517
Knox131718
Fulton128726
Jefferson128613
Crawford126817
Washington125227
Ottawa124530
Clinton109115
Williams10799
Ashland107825
Highland103718
Brown10135
Henry101323
Hardin99719
Champaign9825
Van Wert97318
Jackson96212
Fayette92717
Morrow9202
Guernsey89314
Coshocton85215
Perry82912
Adams80313
Pike7661
Gallia76513
Wyandot73217
Paulding66511
Hocking64516
Noble62224
Carroll48810
Meigs39612
Monroe32321
Morgan2685
Vinton2246
Harrison2193
Unassigned00
Fort Wayne
Overcast
45° wxIcon
Hi: 46° Lo: 29°
Feels Like: 40°
Angola
Overcast
43° wxIcon
Hi: 45° Lo: 28°
Feels Like: 37°
Huntington
Overcast
45° wxIcon
Hi: 46° Lo: 27°
Feels Like: 41°
Decatur
Overcast
45° wxIcon
Hi: 47° Lo: 29°
Feels Like: 45°
Van Wert
Overcast
45° wxIcon
Hi: 47° Lo: 29°
Feels Like: 45°
Mostly Cloudy Black Friday
WFFT Radar
WFFT Temperatures
WFFT National

Community Events