It’s been another hard earnings day for General Electric Co. This time, however, the company appears to be finally cutting deep enough to give its turnaround efforts a real chance.
In an announcement of its third-quarter results on Tuesday, GE has slashed its dividend to a nominal penny a share and said that it would split its struggling power business into two units. GE reported a huge loss of $630 million in its power segment for the quarter. Far exceeding analysts’ expectations and dragging GE’s overall results well below heavily reduced estimations.
The latest dividend cut came almost exactly a year after former CEO John Flannery slashed the payout and admitted to GE not being able to generate enough cash for years to support it. Flannery was abruptly replaced with the current CEO of the company Larry Culp, formerly a CEO of Danaher Corp. earlier this month.
Flannery’s efforts were at times too slow and too incremental. He was instrumental in plotting a breakup of the company that ensured to see its health-care business stand alone. Tuesday’s changes show that GE will look very different under Culp’s watch. Analysts say that GE’s power unit in conjunction with Culp’s hiring will amount to $22 billion.
The dividend cut is expected to save GE about $3.9 billion a year. The split of the power unit essentially creates a bad economy for GE’s gas turbine and services businesses and a good bank for its other assets such as power unit including steam, grid solutions, nuclear and conversion. GE’s power business has suffered due to many factors such as mismanagement and the pursuit of scale at the expense of pricing discipline. But the most difficult challenge the company faces is to overcome the secular weakening of demand for power-plant equipment as renewable-energy technologies have recently become cheaper.