Thread regarding General Electric Co. layoffs

Working for GE Power in Greenville feels a lot like how my dad felt working for Kodak in Rochester in the late 90s. The world has already passed us by and nobody bothered to tell us.

@1als You are embarrassingly dumb.

"Question is how soon?"

Do you work in Power turbines? If you do, look around. It's already happened.

I agree that renewables is the future. Question is how soon? One day we could all be harvesting energy directly in space with giant multi-square-mile cheap solar batteries and then wirelessly beam it back to Earth. One day. But not today. Today's renewables still are heavily subsidized and have all kinds of hidden costs, and they are not as clean as press would lead you believe. In the meantime, many places are having issues with drinking water because desalination takes up too much energy. There will be enough demand for cheap power, including gas turbine power, long enough for most people on this board to retire.

THis is the calmest clearest an most detailed article I've seen on GE. Good find!

*“The world is moving toward renewables, and ultimately, the gas-turbine market is going to be a global niche. The cost of renewables and storage to produce electricity is below gas and doesn’t have environmental issues.”

GE’s turbines include the massive H-class, which can produce enough power to heat more than 250,000 homes.

GE Power lost a gas-turbine contract to rivals late last year in Brazil, a market it has dominated. Global orders for new gas turbines fell to an estimated 35 gigawatts in 2017, the lowest since 2002, and GE is planning for another decline in 2018 to as low as 30 gigawatts.*

If you are young, you need to find a growing business and leave GE. NOW! Find an optimistic life you can raise a family on. If you are old, you need to pay off your debt NOW because bad times are coming.

Give it a rest for crissake you're like a broken record.

Did I-Melt sell stock and options while GE was doing $22B buybacks in 2016?

YOU THE REAL MVP!

Watch for more announcements of GE selling off business’s to make their 2018 numbers. I don’t know how GE employees feel but I like to work for a company that wants to grow not sell off and down size businesses to make their numbers. No wonder JF indicated he would make his 2018 earnings guidance. He has plans to sell off 7-10 billion in business parts to fill the holes. Here is a news flash, JF ! Less than 10 of GE employees want to work for the company and like what is going on. Do you really think they are working for you or are they looking for job and doing the very bare minimum on a day to day basis. Is this a company that a investor wants to put their money in? Stop thinking you are going to get a 20% bump in the stock potential investors. It seems simply not going to happen. GE leadership needs to go and major fundamental changes need to take a job place. Maybe even a total breakup is needed.

(PART 1)

General Electric’s Dim Prospects

By Andrew Bary, Barron's

February 17, 2018

Two decades ago, General Electric was the most admired company in the world, a global colossus hailed for its ability to wring out inefficiencies and generate wealth. But there seems to be little to like about GE today.

The company (ticker: GE) lost $6 billion in 2017 after a series of charges and impairments, and cut its dividend by 50%. The Securities and Exchange Commission is investigating its accounting. Its stock price has fallen 51% in the past 12 months, to about $15, and its market capitalization has shrunk to $130 billion from a peak of nearly $600 billion in 2000. The long slide has been particularly painful for individual investors, who make up an estimated 40% of GE’s shareholder base.

Lately, however, GE has been attracting fresh attention from value-oriented investors. As the most out-of-favor major industrial company in the U.S. stock market, the company has some classic value attributes. It trades for a seemingly reasonable 15 times projected 2018 earnings of 98 cents a share, a discount to the Standard & Poor’s 500 index, which fetches 18 times forward earnings. The stock yields 3.2%, half again as much as the S&P 500 index.

“GE is a high-quality company with strong competitive positions that is trading below intrinsic value,” says Michael Kon, director of research and a portfolio manager at the Golub Group, an investment manager in San Mateo, Calif. He conservatively pegs the company’s asset value at $18 a share, and possibly as high as $20 a share.

Barron’s has taken a fresh look at GE, too. But our view is that the stock isn’t a bargain and could drop another 10% or more.

While a breakup of the company is possible, the stock doesn’t look cheap based on a sum-of-the-parts analysis. And weak trends in GE’s power business could put 2018 earnings at risk. The company is the leading producer of natural-gas-fired turbines for electric utilities, with about a 50% market share globally. Yet that market is in decline as a result of the growth of increasingly cheap solar and wind power.

Another reason to be skeptical about GE is its impenetrability, underscored by the way the ghosts of businesses past continue to haunt the company. For example, the company surprised investors in January by taking a $9.5 billion pretax charge for old insurance contracts.

Some investors put GE into what Warren Buffett has called the “too hard” pile—companies that the famed investor passes up on buying because he can’t understand them well enough. During the financial crisis in 2008, Berkshire made a lucrative $3 billion preferred-stock investment in GE, which GE redeemed three years later. Berkshire doesn’t own GE common shares currently, based on latest filing data.

(PART 2)

THERE ARE OTHER RISKS that investors might not appreciate, including the financial leverage in GE’s industrial business and large unfunded pension obligations. The company also stands behind GE Capital, its financial-services unit, whose stand-alone credit rating would barely be investment-grade without support from its parent, according to Moody’s Investors Service.

Barron’s has been wrong in the past about GE. In an article late last spring, soon after GE veteran John Flannery was named to replace longtime CEO Jeff Immelt, we were upbeat on GE (“General Electric Shares Could Return 15%,” June 17, 2017). At the time, the stock traded at $29.

Calling 2018 a “reset year” for GE, Flannery has expressed confidence in the long-term outlook. He said on the company’s fourth-quarter earnings conference call last month that “the strength of our core businesses remains intact.” Turnaround plans include realizing $2 billion in cost savings this year on top of $1.7 billion last year. The company is seeking to generate $20 billion from asset sales. In addition, some form of a corporate breakup might be considered. Top managers have been replaced at the power and financial-services units. GE plans to cut its board to 12 directors from 18 in April and include several new members.

A once-sprawling conglomerate that included credit cards, insurance, and real estate, GE has already streamlined significantly. Nonetheless, it remains a giant enterprise. The company had industrial sales of $116 billion last year from a range of businesses: aviation, health care, power, oil and gas services, transportation (locomotives), and lighting. The appliance business was sold in 2016, and GE Capital, which once contributed more than 40% of the company’s earnings, has been sharply scaled back.

Last year, GE merged its oil-and-gas service business with Baker Hughes (BHGE) to form what’s known as Baker Hughes, a GE company. Its 62.5% stake is worth about $19 billion. The financial performance of the combined enterprise has been disappointing since the combination, and the stock is down over 50%.

And while GE Capital has narrowed its focus to providing financing for customers of the industrial business, it retains some of the liabilities for disposed businesses such as long-term care insurance.

MANY ANALYSTS ASSIGN no value to GE Capital in the wake of the insurance reserve charge. GE Capital’s equity capital fell 45% last year, to $13.5 billion, ballooning its debt-to-equity ratio to 7.1-to-1 from 4.7-to-1 at the start of 2017.

GE has said it plans to reduce the leverage ratio to 4.5 by the end of 2019. Burdened by the need to bolster its insurance reserves, GE Capital isn’t expected to pay a dividend to the parent company in 2018; last year, it paid $4 billion. GE Capital’s results are expected to be around break-even in both 2018 and 2019.

The finance unit, GE contends, remains solid, with its chief financial officer, Jamie Miller, saying on a January conference call that it has “strong liquidity metrics,” including $31 billion in cash.

Yet, one reason it is hard to have confidence in GE, says Deutsche Bank analyst John Inch, is the dramatic decline in the company’s financial guidance. A year ago, GE still talked about generating $2 a share in 2018 earnings. Its current guidance is $1 to $1.07 a share—with the Street consensus below that range at 98 cents. GE earned $1.05 a share in 2017, excluding charges, down from $1.49 in 2016. And, at a time when many of GE’s peers are generating robust growth, the company’s organic sales were down 6% in the fourth quarter.

“I don’t think GE is cheap,” Inch says. “GE earnings remain at risk, the SEC investigation is serious, [the company] is heavily reliant on contract asset accounting, and there is no room for error in health care and aviation. GE has to backstop GE Capital’s liabilities, and the pressures on power are a multiyear event.”

Inch carries a Sell rating on GE and recently cut his price target on the stock to $13 from $15.

(PART 3)

The SEC investigation, which GE disclosed in its January earnings call, centers on what it says is the process leading to last month’s move by GE Capital to increase the reserves by $15 billion for long-term care and other insurance policies through 2024, and $29 billion of service contracts for the power and aviation businesses that are capitalized on the company’s balance sheet. CFO Miller said on the call that she isn’t “overly concerned” about the regulatory probe.

A major element of the bullish argument for GE is that the company’s two world-class businesses—aviation and health care—have performed well and are valuable, despite the problems in the other main units, power and GE Capital. The aviation unit is the crown jewel. Last year, it produced more than 45% of the $14.7 billion of pretax operating profits generated by the company’s industrial businesses. Aviation is dominated by commercial jet engines, and GE has a leading share in that booming market.

CFM International, a joint venture between GE and French aerospace company Safran (SAF.France), has an effective duopoly with a Pratt GE debt and credit-default swaps trade at levels more consistent with a triple-B rating, the lowest investment-grade rating.

GE’s 10-year bonds recently yielded 4%, about a percentage point above U.S. Treasuries. The company’s leverage ratio at its core industrial business is 3.4, based on debt to earnings before interest, taxes, depreciation, and amortization. By contrast, Honeywell International’s (HON) debt-to-Ebitda ratio is less than one.

Then there are GE’s pension plans, which were underfunded by $31 billion at the end of 2016. While the plans probably benefited from a stronger stock market in 2017, they were still likely to have been substantially underfunded at the end of last year. (That information won’t be available until the company releases its 10-K filing in the coming weeks.)

(PART 4)

Some investors play down the pension underfunding, but the obligations are real. Underscoring this, GE plans to sell $6 billion of debt this year to contribute to its pension plans, in what amounts to a wealth transfer to employees and retirees from shareholders.

The subject that fires up any discussion of GE’s valuation is a possible breakup of the company. That could be tricky to accomplish given the leverage at the industrial business, the pension obligations, and the support that GE provides to GE Capital.

An initial public offering of the health-care business, for instance, would bring cash to GE but also deprive the company of full control of its cash flows.

JPMorgan analyst Stephen Tusa has been bearish on GE, and recently wrote that there is “no easy way out” for GE, whether it stays the course or separates some of its businesses. Tusa was interviewed in Barron’s last fall (“JPMorgan Analyst: The Case Against GE,” Nov. 4, 2017).

Tusa did a sum-of-the-parts analysis in late January and came up with a value of $13 a share, with potential downside to $10 a share. The analyst, who has an Underweight rating and a $14 price target, carries a below-consensus earnings estimate of 88 cents for this year and 85 cents for 2019.

Last week, Tusa updated his analysis to reflect potential sales of GE’s transportation and lighting businesses, an exit to the stake in Baker Hughes, and a partial initial public offering of the health-care business. He still came up with a $13 net asset value.

“Beyond the simplistic math, what sticks out is a portfolio that still is low-growth, with weak free cash flow and too much leverage, raising a question of whether an equity raise is possible,” he wrote.

GE doesn’t need to raise equity now, he added, but still might raise capital to shore up its balance sheet. The company says such a move is unnecessary. It has earmarked $20 billion in proceeds from asset sales, possibly involving transportation and lighting.

“With the leverage GE has at the industrial business and GE Capital, the company has to take care of bondholders first, and that comes at the expense of equity holders,” Tusa says.

In a move it might now regret, GE used proceeds from asset sales at GE Capital to buy back $22 billion of stock in 2016 at an average price of about $30 a share. Buybacks look unlikely in 2018.

LET’S WALK THROUGH Tusa’s sum-of-the-parts analysis. He makes cash-flow assumptions for 2018 based on projected Ebitda for GE’s major businesses, assigns multiples to them, and then subtracts liabilities to come up with an equity value for the company.

He uses ample multiples of 13.5 for aviation and health care, above comparable companies such as Philips (PHG), in health care, and United Technologies, in aircraft engines. Both trade around 11 times projected 2018 Ebitda.

In his analysis, Tusa subtracts the net debt at GE’s industrial business, pension obligations, and a big provision for corporate expenses if the various businesses were separated. His $10-a-share downside calculation reflects potentially less value in GE’s maintenance and equipment contracts, whose underlying assumptions aren’t disclosed. There are also potential liabilities stemming from GE’s ownership of WMC Mortgage, a subprime mortgage company that GE bought in 2004 and sold in 2007.

There is also potential liability related to shareholder lawsuits. GE was sued Friday by a shareholder who accused the company of hiding insurance liabilities and the SEC investigation. A GE spokesperson said, “The company will defend itself against these claims.”

GE faces other shareholder suits related to the drop in its share price.

A swing factor in any valuation of GE is power. The longstanding business is the largest at GE in revenue generation, and has a storied history. Its turbines produce a third of world’s electricity. Profits fell 45%, to $2.8 billion, last year, however, as the company wrote down assets and took restructuring charges.

Bulls use a higher multiple than Tusa’s six times on power, but he argues that the business faces multiyear challenges from the growth of increasingly cheap renewables and competitive pressure from rivals Siemens (SIEGY) and Mitsubishi Heavy Industries (7011.Japan).

“Gas turbines are one of the most challenged end-markets that I cover from a supply-and-demand perspective,” Tusa says. “The world is moving toward renewables, and ultimately, the gas-turbine market is going to be a global niche. The cost of renewables and storage to produce electricity is below gas and doesn’t have environmental issues.”

GE’s turbines include the massive H-class, which can produce enough power to heat more than 250,000 homes.

GE Power lost a gas-turbine contract to rivals late last year in Brazil, a market it has dominated. Global orders for new gas turbines fell to an estimated 35 gigawatts in 2017, the lowest since 2002, and GE is planning for another decline in 2018 to as low as 30 gigawatts. The power division is undergoing a sweeping restructuring, including the layoff of 12,000 employees.

Things aren’t any better at GE’s renewable-power division, a maker of wind turbines. It has lost further U.S. market share to European rival Vestas Wind Systems (VWS.Denmark), according to Bloomberg New Energy Finance, amid continued price declines. Vestas is No. 1 and GE No. 2 in the U.S.

Valuing the power business means understanding the role played by contract assets. They involve long-term services and equipment, mostly in power and aviation. The future profitability of the contracts is based on undisclosed assumptions, and is one reason the company is called a “black box.”

Miller, GE’s CFO, spoke highly of the contracts, calling them “high-margin, high-return” on a November conference call. She described them as 10 to 20 years in length “where customers have predictable maintenance costs in exchange for performance guarantees on equipment.”

Tusa told Barron’s last year that rivals have nothing comparable in size to GE’s contract assets.

THE BULL CASE FOR GE is made by analysts such as Nicholas Heymann of William Blair, who sees a likely bottom in earnings. In a recent client note, he wrote that “once regulatory reviews and shareholder lawsuits are settled or dismissed, we believe GE’s focus on better-than-expected free cash flow and an accelerated pace of asset sales are likely to enable the shares to return to a ‘normalized’ valuation of 20 times trough earnings per share of $1 to $1.07, or a valuation in the $20 to $22 range.”

Inch’s retort to the bulls is that an investor “should pay 20 times earnings for a company with significant growth prospects backed by free cash flow.” GE, he says, doesn’t qualify, noting that “GE may take many years to work out its challenges.” Honeywell, a top-performing industrial company, trades for 19 times projected 2018 earnings.

The next humiliation for GE as a U.S. corporate icon could come if it is dropped from the Dow Jones Industrial Average as a result of its depressed stock price. It is the last remaining original member of the 1896 Dow: Its peers included the U.S. Leather Company and Tennessee Coal, Iron & Railroad.

With the lowest share price among the Dow 30— Pfizer (PFE) is next at $35—GE is largely irrelevant in an index that is weighted by the prices of the individual stocks, not market values. The committee overseeing the Dow might decide to add a company that can make more of a difference to the index.

If GE is dumped from the Dow industrials, bulls would seize on that as a sign of a bottom. Yet a close look at GE suggests the stock isn’t cheap based on earnings, a sum-of-the-parts analysis, leverage, complexity, and business challenges. GE’s best days may lie in the past.