US industrial giant General Electric Co, hit by losses from bad investment decisions, is planning to recast business and strategy by selling off some of the major business segments and lay off thousands in the process.
GE has failed to generate enough cash to match its huge dividend payout after a series of divestitures. The initial $12 billion to $14 billion goal has become unrealisable after big earnings misses in its power and energy businesses.
GE expects to generate just $7 billion in cash flow from its industrial operations this quarter – which will leave the company, after meeting its pension and capital expenditure expenses, with just $2 billion against a dividend that costs more than $8 billion.
Shareholders are bracing for a cut in dividends, the first since 2009, as GE will have only $2 billion left in free cash at the end of September but needs to pay out $8 billion.
Chairman and chief executive John Flannery plans to unveil a road map for the company that will focus on three of its biggest business lines - aviation, power and healthcare - the Wall Street Journal reported, citing a person familiar with the matter.
''This was a very challenging quarter. While a majority of our businesses had solid earnings performance, this was offset by a decline in power performance in a difficult market. Our industrial operating cash flow for the quarter was down principally because of lower power volume, resulting in lower earnings and higher inventory. We believe that the new leadership team at power and the cost actions that we are taking will better position the company in 2018 and beyond,'' Flannery said.
With its market capitalisation down more than $100 billion since January, pulled down by its loss-making bets in energy sector, particularly in oil and gas, the maker of jet engines and power turbines is planning to return to its original moorings.
However, instead of a radical restructuring of the 125-year-old company, Flannery is expected to look to shed most of GE's other operations, says a Wall Street Journal report.
The Boston-based company will shed its majority stake in Baker Hughes, which became a separate public company in July, after merging with GE's oil and gas operations, the report said.
GE could also be laying off sales staff and other employees in its software division, in order to slash costs and jettison units in an effort to improve the company's profits.
For newly installed CEO JFlannery, who has been CEO of General Electric for only three months, the immediate concern is to revive the company and rebuild trust.
"There is no sacred cow," Flannery has said repeatedly about the need to cut costs and restructure.
Flannery took the helm after 16 years of leadership by Jeff Immelt, who sold off GE's stake in TV and movie giant NBCUniversal as well as its household appliance segment and much of its banking and finance business.
The belt tightening follows a $1-billion cost-cutting programme this year and an announcement of $2 billion in cuts next year. GE's employee strength has fallen 11 per cent to 295,000 as of the end of last year.
The transportation unit that produces locomotives had revenues of $4.7 billion last year.
The medical data management group led by API Healthcare and its subsidiary Centricity EMR are part of a GE branch that took in $18.3 billion in 2016.
Selling these businesses could bring GE a big step closer toward its goal of shedding $20 billion in assets over the next two years.
Alternatively, reports said, the company could spin off its aircraft leasing operation GE Capital Aviation Services, which maintains a fleet of nearly 2,000 aircraft.
GE also will have to repair an image damaged in the wake of revelations that former CEO Immelt secretly travelled on a corporate jet at company's expense.
Under pressure from activist investor Nelson Peltz, Flannery has promised to change the company's culture and may announce new steps in that direction.
He already has put the company jets up for sale, canceled the corporate car service, and called off the annual three-day retreat for executives that was due to occur at a luxury resort in Boca Raton, Florida.