The Rise and Fall of GE

By Mrinalini Krishna, 8/15/18.

It can be safely said that 2018 has not been a good year for General Electric (GE) so far. On June 19, 2018, General Electric's more than 100-year run on the Dow Jones Industrial Average came to an end. The last remaining original component of the Dow, was dropped from the index. One of America's best-known companies that traces its roots back to Thomas Edison, is now no longer among the elite of the stock markets. Nearly two months later, GE shares traded below $12 a share to hit a 9-year low.

The industrial conglomerate is struggling though it has been trying hard to script a turnaround. In an effort to streamline operations, GE announced in June 2018 that it planned to spin off its healthcare unit as a standalone business. The company also revealed that it will sell off its stake in its oil services company Baker Hughes, hoping these actions will allow it to focus on the aviation, power, and renewable energy units.

While GE has been shedding parts of the conglomerate, its stock has been taking a beating. In March this year, Wall Street buzzed with speculation that Warren Buffett, the legendary investor at the helm of Berkshire Hathaway, was considering buying a stake in General Electric, the same company he helped stabilize during the 2008 financial crisis.

The General Electric Company (GE), which celebrated its 125^th anniversary in 2017, has been widely reputed as one of the most reliable performers in the stock market. But lately, GE has weathered some of its worst years in recent history. Shares have fallen a whopping 62% since January of 2017, the company announced it would cut 12,000 jobs in 2017, and the December dividend was slashed by 50%. The company’s market cap, which stood at $107 billion in August 2018, has fallen more than the entire market cap of competitor Honeywell International Inc. ($114 billion as of August 2018).

Despite GE’s well-publicized free fall, investors are still very much attuned to the rise and fall one of the most iconic American companies.

All eyes are on new CEO John. L Flannery, who has begun implanting massive changes to stop the bleeding since assuming the position of CEO in August 2017. Here’s a closer look at the rise and fall of a company that has come to define American industry and corporate culture.   

GE and the Birth of American Innovation - When most Americans think “GE,” they probably think about light bulbs, televisions, and washing machines. GE was born out of the race to provide affordable light and electricity to fuel the growth of industrial America and quickly became a household name. It was incorporated in 1892 as a result of a merger between the Thomson-Houston Company and the Edison General Electric Company.

The 1980s: ‘Neutron’ Jack Welch’s GE - After former chemical engineer John F. Welch Jr. assumed the top spot at GE in 1981, GE acquired RCA and NBC and expanded into the financial services sector. A titan in the business world, Welch was known for his aggressive winnowing of unnecessary personnel. He earned the nickname of “Neutron Jack” because of his tactic of eliminating GE’s employees but leaving its physical assets intact.  

2008: GE In Crisis  - The 2008 financial crisis hit GE hard. The company’s stock fell 42% during the year, and after Welch’s departure, it became clear that GE was overstretched and bloated. The GE Capital financial segment nearly toppled the company during the Great Recession because it did not have a competitive advantage over other financial services companies. To this day, segment is still the subject of complaints that its balance sheet is too opaque and unwieldy.  

A Simpler, More Focused GE - Today, GE has customers in over 180 countries and employs 313,000 people worldwide. It operates in several massive industrial segments, including power, renewable energy, oil & gas, aviation, healthcare, transportation, lighting. GE Power is the largest generator of revenue for GE, earning just under $36 billion in 2017. The next most profitable segment was GE Aviation at about $27.4 billion. 

GE’s earliest products were incandescent light bulbs, an electric locomotive, early x-ray machines, and an electric stove. The company began mass-producing electric home appliances in the 1920s and was soon credited for changing the landscape of the American home. 

In the years that followed, GE developed vacuum technology that enabled the invention of the microwave and radar systems. It supplied the military with equipment and executives during World War II, and in 1949 introduced the J-47, the most popular jet engine in history.  In the 1960s and 70s, GE was a pioneer in laser light technology and medical imaging. 

By the time Welch stepped down in 2001, he had transformed GE from a $25 billion manufacturing company into a $130 billion conglomerate of “boundary-less” segments.  

Warren Buffett famously stepped in and invested $3 billion in 2008 to stabilize GE’s operations. And GE’s troubles didn’t end with the financial crisis. Its $9.5 billion purchase of French transportation company Alstom’s power business in 2015 was widely considered a flop. 

Under Jeffrey R. Immelt, the former head of GE Medical Systems and Welch’s successor, the company was forced to strip down GE Capital and return to its roots in manufacturing. GE also divested billions of dollars in loans and real estate and jettisoned NBCUniversal, GE Plastics, and GE Water, and GE Appliances. 

In 2009, the company slashed its yearly dividend from $1.24 to $0.82. Dividends fell even further in 2010.  Immelt served as CEO for 16 years, and stepped down in earlier than expected 2017. He later accepted the chairman position at athenahealth.

John L. Flannery took over the role of CEO in August 2017, and vowed to reset and refocus many of GE’s business segments. He oversaw the consolidation of GE’s energy and power businesses under the umbrella of GE Power, for instance, and has pledged to “tighten the scope” of GE’s investments. 

The company’s healthcare unit, GE Healthcare, announced on April 2 that it would sell its IT business to Veritas Capital for $1.05 billion. The business segments acquired by Veritas include its financial management, ambulatory care and workforce management software assets, according to a statement by GE. This sale was the first of a planned divestment of $20 billion in assets aimed at creating a “simpler, more focused GE.” 

As GE strives to trim its excess weight, it continues to contend with less than enthusiastic forecasts from analysts who wonder if a bottom is in sight for the stock. 

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