GE slashes 119-year old dividend to a penny

General Electric is under such financial stress that new CEO Larry Culp is slashing the troubled conglomerat...

Posted: Oct 31, 2018 5:02 AM
Updated: Oct 31, 2018 5:02 AM

General Electric is under such financial stress that new CEO Larry Culp is slashing the troubled conglomerate's 119-year-old dividend to just a penny a share.

GE revealed on Tuesday worse-than-expected results and a $22 billion accounting writedown for its beleaguered power division. Culp plans to split up the power division to accelerate a turnaround.

Business figures

Business, economy and trade

Companies

Company activities and management

Financial performance and reports

Financial results

General Electric Co

Larry Culp

Banking, finance and investments

Financial markets and investing

Securities trading

Stock markets

The company also announced that the SEC and Justice Department are investigating the charge, which reflects the deterioration of businesses GE has acquired. The news adds to GE's mounting legal problems and helped send the stock plunging 9% to a nine-year low. It was GE's worst day since March 2009.

In a bid to fix GE's debt-riddled balance sheet, Culp announced the company will cut its quarterly dividend from 12 cents a share starting in 2019. By paying just a token dividend, GE (GE) will save about $3.9 billion of cash per year.

Analysts had been anticipating a potential dividend cut, though not one of this magnitude.

It's an especially painful move for a company that long viewed its stable dividend as a source of pride. But years of bad decisions forced GE to halve its dividend last November for just the second time since the Great Depression. The dividend cuts deal a blow to the many GE retirees and mom-and-pop shareholders who long relied on the cherished payouts.

"We are on the right path to create a more focused portfolio and strengthen our balance sheet," Culp said in a statement.

Culp, who was suddenly named CEO on October 1, acknowledged during a conference call "this is not a quarter that we're particularly proud of."

Investors may have been spooked by the fact that GE did not even offer guidance for the fourth quarter or 2019.

"There was no reset. They didn't even tell you what the earnings and cash flow will look like. They just don't know," said John Inch, an analyst at Gordon Haskett.

GE's cash troubles

Dividend cuts are very rare these days, because the US economy is booming. Most companies, flush with cash from tax cuts, are ramping up their dividends. At least 291 S&P 500 companies have hiked their dividend so far this year, according to Howard Silverblatt of S&P Dow Jones Indices. Just two S&P 500 companies had cut their dividend as of early October, Silverblatt said.

"We find the move brave and necessary and a sign that Mr. Culp will not take half measures to improve the company," CFRA analyst Jim Corridore wrote to clients.

But GE tried to hush calls for the company to strengthen its balance sheet by selling stock. Some analysts have said GE Capital needs a cash infusion totaling billions of dollars.

"Let me state in a straightforward fashion, we have no plans for an equity raise," Culp told analysts.

Power problems deepen

GE's power division remains the biggest source of trouble at the company, drowning out strength from its aviation business. Revenue tumbled 33% last quarter at GE Power due to "continued market and execution challenges." The division swung to a loss of $631 million, compared with a profit of $464 million the year before.

Jamie Miller, GE's chief financial officer, warned that the problems in power will "persist longer and with deeper impact" than previously expected. In light of that, GE expects to significantly miss its full-year earnings and cash flow targets.

"Power is bad and certainly nowhere near as salvageable as Bulls think," JPMorgan analyst C. Stephen Tusa, Jr. wrote to clients.

GE Power, which makes turbines for power plants, has been caught badly off guard by the shift away from coal and gas in favor of renewable energy. Under former CEO Jeff Immelt, GE doubled down on fossil fuels by spending $9.5 billion in 2015 to acquire Alstom's power business. The deal turned out to be a disaster, underscored by the $22 billion goodwill impairment charge recorded last quarter.

GE said on Tuesday it will reorganize the power business by creating two units, one focused on natural gas and the other holding the steam, nuclear and other assets. And Culp, who was known for running a tight ship at Danaher, plans to "consolidate" GE Power's headquarters structure.

Culp signaled that he's on board with the plan announced by former CEO John Flannery to further dismantle GE by spinning off the health care business and unloading its majority stake in oil and gas giant Baker Hughes (BHGE). Culp said GE expects to sell the Baker Hughes stake "in an orderly fashion, over several years." And despite his background in health care, Culp said it's probably best for health care to be independent.

Culp also downplayed talk that he could further shuffle GE's executive ranks. "I feel good about the group that we have here and we're committed to building a stronger General Electric," he said.

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 735999

Reported Deaths: 13486
CountyCasesDeaths
Marion1007151752
Lake54249977
Allen40946680
St. Joseph36335553
Hamilton35829408
Elkhart28844443
Tippecanoe22475219
Vanderburgh22367397
Porter18946311
Johnson18067381
Hendricks17317315
Clark13036192
Madison12762339
Vigo12501249
LaPorte12086215
Monroe11957172
Delaware10755187
Howard10001218
Kosciusko9466117
Hancock8373142
Bartholomew8098156
Warrick7799155
Floyd7690178
Grant7098174
Wayne7072199
Boone6745101
Morgan6611140
Dubois6166117
Marshall6111112
Cass5876105
Dearborn583178
Henry5785105
Noble565984
Jackson503773
Shelby494396
Lawrence4602120
Gibson437192
Harrison436672
DeKalb430585
Clinton428453
Montgomery425889
Whitley398739
Huntington394480
Steuben391057
Miami383968
Knox372890
Jasper372649
Putnam363760
Wabash355380
Adams342755
Ripley340770
Jefferson331881
White317754
Daviess298399
Wells292081
Decatur285992
Fayette282162
Greene280585
Posey272034
LaGrange268970
Scott267554
Clay261347
Washington242132
Randolph242081
Spencer232931
Jennings230949
Starke219354
Fountain213946
Sullivan212242
Owen203356
Jay197830
Fulton196040
Carroll190420
Orange184754
Perry184637
Rush174025
Vermillion170044
Franklin168535
Tipton163445
Parke146716
Pike135634
Blackford135132
Pulaski117445
Newton108934
Brown102641
Crawford101415
Benton99014
Martin89515
Warren82615
Switzerland7948
Union71410
Ohio57111
Unassigned0417

Ohio Coronavirus Cases

Data is updated nightly.

Cases: 1091623

Reported Deaths: 19528
CountyCasesDeaths
Franklin1268061406
Cuyahoga1132982134
Hamilton804211211
Montgomery518231015
Summit47606955
Lucas42618792
Butler38548585
Stark32661909
Lorain25199486
Warren24390300
Mahoning21795588
Lake20846371
Clermont19880240
Delaware18608133
Licking16488212
Fairfield16327200
Trumbull16196468
Medina15379266
Greene15143244
Clark14096299
Wood13168189
Portage12966206
Allen11740232
Richland11433199
Miami10713220
Wayne8923214
Columbiana8881229
Muskingum8831133
Pickaway8596121
Marion8561136
Tuscarawas8509245
Erie7958155
Hancock6944128
Ashtabula6904172
Ross6876156
Geauga6741148
Scioto6444102
Belmont5978168
Union575448
Lawrence5590102
Jefferson5583151
Huron5462120
Sandusky5380122
Darke5374126
Seneca5311122
Washington5228109
Athens520858
Auglaize494986
Mercer481585
Shelby470293
Knox4513110
Madison439363
Putnam4301101
Ashland426590
Fulton426469
Defiance424697
Crawford3993107
Brown397557
Logan383276
Preble381398
Clinton374163
Ottawa369081
Highland356862
Williams343475
Champaign335358
Guernsey317653
Jackson314152
Perry295950
Morrow287239
Fayette283550
Hardin271964
Henry270366
Coshocton266157
Holmes2625101
Van Wert244263
Adams240053
Pike238634
Gallia236749
Wyandot232155
Hocking216462
Carroll192448
Paulding174340
Meigs145540
Noble134137
Monroe132542
Harrison109637
Morgan108823
Vinton84915
Unassigned02
Fort Wayne
Partly Cloudy
56° wxIcon
Hi: 77° Lo: 54°
Feels Like: 56°
Angola
Partly Cloudy
55° wxIcon
Hi: 77° Lo: 51°
Feels Like: 55°
Huntington
Partly Cloudy
56° wxIcon
Hi: 75° Lo: 56°
Feels Like: 56°
Decatur
Partly Cloudy
56° wxIcon
Hi: 77° Lo: 55°
Feels Like: 56°
Van Wert
Partly Cloudy
53° wxIcon
Hi: 78° Lo: 53°
Feels Like: 53°
Tuesday will be a mostly cloudy and warm day with the chance of a few afternoon thundershowers.
WFFT Radar
WFFT Temperatures
WFFT National

Community Events