Category Archives: GE – General Electric

GE has completed its first flight test of the world’s largest jet engine

GE has completed its first flight test of the world’s largest jet engine GE has completed its first flight test of the world’s largest jet engine
2:30 PM ET Thu, 15 March 2018 | 00:52
General Electric has conducted its first flight test of the world’s largest-ever jet engine.

The GE9X engine lifted off Wednesday, under the wing of GE Aviation’s Boeing 747 flying test-bed in Victorville, California.

The test had been delayed from February after engineers discovered a design issue with the turbofan. GE described the issue as minor and that it would not delay the program.

The engine has approximately the same diameter as the fuselage of a Boeing 737 and houses a 134-inch-diameter front fan, that GE has claimed to be the largest of any commercial engine in production.

In a press release, Ted Ingling, the general manager of the GE9X program, said the test flight was “picture perfect,” adding that final engine certification is expected in 2019.

GE is building the GE9X for Boeing’s new 777x long-haul airplane, due to take to the skies in 2020. Almost 700 GE9X engines are already on order.

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The fall of GE

The WeekThe Week

What happened to General Electric? For much of its 128-year history, GE was a quintessential American company. It produced the iconic incandescent bulb, the first commercial power station, the first commercial nuclear plant, the first American jet engine, and early advancements in plastics and silicon, just to name a few.

But today, the company’s market capitalization is plummeting, and it’s frantically selling off divisions for spare parts. It may eventually break up entirely.

The story of GE’s fall is one of bad luck, spectacularly bad decisions, and a very particular kind of elite American hubris.

It arguably begins with the arrival of the legendary Jack Welch as CEO in 1981.

Welch expanded GE beyond its familiar territories of manufacturing, engineering, and chemicals. He laid off workers and bought up new companies, including a 1986 purchase of RCA, which handed over NBC television. During this time, GE grew from a $25 billion manufacturing company to a $100 billion conglomerate.

But Welch’s particular interest was in finance, and this is where the trouble really starts.

It was under Welch’s leadership that GE Capital, the company’s banking arm, was created. It became a $500 billion Wall Street player, accounting for almost two-thirds of GE’s profits at its peak. Its hands were in everything from credit cards, to insurance, to mortgages. At the time, this was all seen as a smart, low-cost way to boost profits. “And you don’t have to build a factory,” Welch supposedly enthused.

The trend continued under Welch’s successor, Jeffrey Immelt, who took over as CEO in 2001. GE got into real estate, bought 80 percent of Universal Pictures, and even snatched up a subprime mortgage lender in California.

But GE’s transformation was always Welch’s legacy. It was hailed as a “landmark in American capitalism” and “the house that Jack built.” GE Capital was cited as proof that financial regulations needed to be slimmed down and modernized for the 21st century. (Democrats and Republicans alike were happy to oblige.) Welch was declared a “visionary,” and named “manager of the century” in 1999 by Fortune. A New York Times story from that same year oohed and aahed over Welch’s GE for its downsizing, profitability, internet savvy, and embrace of the efficiency strategy Sigma Six.

Then the Great Recession happened.

As entangled as it was in the mortgage bubble and the shadow banking sector, GE Capital toppled over. At the height of the 2008 crisis, literally no one would lend to it in the overnight markets. GE Capital was only saved by an emergency injection of $12 billion from Warren Buffet and other investors. It turned out that the good reputation and credit rating of GE’s traditional businesses had essentially been used to gamble wildly in the financial markets.

So for the first time in its history, GE had to slash its dividend payments, from 30 cents to 10 cents a share; a massive two-thirds reduction. In terms of total dollars going to shareholders, it was the biggest single dividend cut by an American company ever.

Ultimately, GE Capital got a whopping $139 billion bailout from the federal government. And still, from 2008 to 2014, the financial arm’s revenue shrank from $68.5 billion to $42.7 billion.

Wall Street shenanigans were not GE’s only mistake. In 2015, it bought Alstom, which specialized in coal turbines — GE’s biggest industrial purchase ever at the time. But doubling down on fossil fuels just as renewables were booming proved a costly mistake, and GE was forced to merge its oil and gas holdings with Baker Hughes in 2016. The company’s unusual accounting methods have also been controversial, obscuring the company’s true health from investors. In 2009, the SEC charged GE with “overly aggressive accounting” and false statements. GE forked over $50 million to settle the charges, while never admitting, or even denying, wrongdoing.

But GE Capital was always the lead weight dragging down the overall company, threatening its ability to borrow or finance operations. By 2015, the division’s assets were down to $363 billion.

Immelt and the company decided to sell off another $275 billion — so far they’ve gotten about $200 billion out the door — and return to GE’s roots. The plan was to raise the company’s manufacturing and industrial operations from 58 percent of earnings to 90 percent by 2018. (They also decided to issue $50 billion in stock buybacks to shareholders.)

It wasn’t enough to stanch the bleeding.

By late 2017, when Immelt finally stepped down, GE was forced to slice its dividend payments again, this time from 24 cents a share to 12 cents. Along with the financial wing, GE had also amputated its media holdings, its well-respected appliance business, NBC Universal, and its plastics business. The new CEO, John Flannery, was talking about refocusing on GE’s small number of successful projects, particularly aviation, health care, and renewable energy. There was even discussion of selling its railway operations and light bulb business.

In both the 2001 and the 2008 bubbles, GE’s market capitalization had spiked and then collapsed. But both times it returned to a steady upward climb. By 2016 it was back near the $260 billion it achieved just before the 2008 bust. But in 2017 — an otherwise boom year for corporate America — it collapsed again, and now stands just under $130 billion.

That brings us up to January 2018, and a final blow. Among GE Capital’s many endeavors was getting into long-term care insurance. It’s proven a particularly devilish business, as many insurers badly underestimated customers’ longevity and medical needs. GE hasn’t actually offered any new policies since 2006, but these long-term care obligations remain. Earlier this year, Flannery admitted the company had underestimated them, too: GE will take a $7.5 billion after-tax charge, and will have to reroute $15 billion in cash over the next seven years to shore up its insurance business. GE Capital, it seems, can do nothing right.

At this point, Flannery might break up the company entirely, but it’s not even clear that’s possible. Many observers suspect GE’s constituent parts are more valuable together than sold separately. Many of those parts still backstop the remaining financial entanglements that GE Capital spawned. Yet the rest of the company still can’t generate enough money to pay shareholders and make new investments.

As a result, GE is now a husk of its former self: A monument to the obviously insane yet somehow still-fashionable idea that it’s smarter to make money off mergers and downsizing and financial games than by building real things for real people.

“This is the opportunity, really of a lifetime, to reinvent an iconic company,” Flannery said in 2017. We’ll see.

General Electric Company (NYSE:GE) has fallen on hard times.

Stock News

The industrial behemoth, collapsing under the weight of shortsighted acquisitions and massive pension obligations, has seen its shares plunge more than 24% in 2018 alone, and 56% over the past 12 months.

However, as CNBC reports, at least once prominent Wall Street analyst at Melius Research believes GE is being undervalued at this point:

Past looks at the value of GE’s individual businesses — also known as a “sum-of-the-parts” analysis — cast doubt on whether a fire sale of GE’s assets would even fetch today’s price at $13.28 per share. But Melius found that spinoffs from U.S. industrial companies return twice the value of the broader stock market, revealing a more optimistic forecast for GE.

“GE’s [sum-of-the-parts] as an example … likely undervalues the assets by 25 percent or more,” Melius wrote.

GE has been spinning off units at a rapid rate to raise cash. It also slashed its dividend and buyback programs to boost liquidity. More unit sales — and layoffs — are likely coming soon, and the question remains whether the once-mighty company can ever generate solid returns for shareholders ever again.

General Electric Company shares closed at $13.07 on Friday, down $0.28 (-2.10%). Year-to-date, GE has declined -24.48%, versus a -2.91% rise in the benchmark S&P 500 index during the same period.

GE currently has a StockNews.com POWR Rating of D (Sell), and is ranked #32 of 34 stocks in the Industrial – Manufacturing category.

Why Amazon.com Won’t Replace GE in the Dow

Madison.com

Storied U.S. industrial giant General Electric (NYSE: GE) has had a rough time over the past year. Earnings expectations have plunged, driven primarily by a big downturn in the company’s power business. Last month, GE announced a massive charge related to its legacy insurance operations. This sparked fears about what other problems may still be lurking beneath the surface.

In response, its new management team plans to simplify the company, but many investors are worried that it won’t be enough. As a result, GE stock has lost about half of its value over the past year.

GE’s moribund stock performance could cause the company to lose its place in the Dow Jones Industrial Average. Tim Mullaney of MarketWatch recently suggested that Amazon.com (NASDAQ: AMZN) should replace it. Amazon is extremely unlikely to join the Dow, though. Among today’s fast-rising companies, Facebook (NASDAQ: FB) is the most likely Dow candidate.

The stock price is the problem
General Electric is the only one of the 12 original Dow components that is still part of the index. Thus, dropping GE from the Dow would be a momentous decision. However, the index committee may not have much choice anymore.

The problem is not that General Electric has suddenly become irrelevant. Analysts expect it to produce more than $120 billion of revenue this year. Even if the company slims down by selling or spinning off its interests in oil and gas, transportation, and lighting, it will still have about $100 billion of annual revenue. That puts it in the upper echelon, even within the Dow index. Among General Electric’s main business segments, only GE Power is shrinking.

Instead, GE is likely to get booted from the Dow because of its low stock price. The Dow Jones Industrial Average is a price-weighted index, which means that low-priced stocks like GE — which ended last week at $15.64 — have a very low weight in the index. (By contrast, Boeing is the highest-priced Dow component, with a stock price of $348.91 as of Friday’s close.)

GE is likely to be replaced in the Dow by a higher-flying stock. Image source: Boeing.

Right now, General Electric stock makes up just 0.4% of the Dow index, compared to 9.4% for Boeing. In short, it has become virtually irrelevant to the index’s performance — as seen from the fact that the Dow has soared over the past year despite GE’s woes. In the past, this has been sufficient cause for removing stocks from the Dow index.

Amazon.com stock is too pricey for the Dow
In terms of fundamentals, adding Amazon to the Dow would make a lot of sense. As Mullaney notes, it’s a massive, fast-growing company that is quickly diversifying beyond its retail roots.

However, its sky-high stock price means that it won’t be considered for inclusion in the Dow. Based on its Friday closing price of $1429.95, Amazon stock would make up nearly 28% of the index, completely dominating its performance.

Mullaney does recognize this obstacle, and suggests that Amazon could split its stock to put the stock price back in range for Dow inclusion. However, Amazon’s last stock split was in 1999. It seems like management has made a philosophical decision to avoid the financial engineering of stock splits and let the stock price go where it will.

Facebook could be the best alternative
CVS Health was Mullaney’s “backup” choice for inclusion in the Dow. It’s already No. 7 on the Fortune 500 list of the largest companies by revenue, and will move up further if its proposed acquisition of Aetna is approved. As one of the leading healthcare companies in the U.S., it is likely to join the Dow index sooner or later.

However, if the selection committee wants to add one of the most prominent high-growth companies to the index, Facebook is the obvious choice.

General Electric targets giant Midlands battery storage system

General Electric (GE) is targeting a portion of the UK’s growing battery storage market, after partnering with London energy firm Arenko to create one of the UK’s largest fully-integrate battery storage solutions.

GE has been involved in battery storage solutions since 2010 and has launched 19 large-scale commercial projects worldwide

Arenko has invested in the American firm’s 41MW battery energy storage system, and will use advanced control technologies to provide on-demand electricity equivalent to approximately 100,000 UK homes.

GE Power’s global commercial and marketing executive for energy storage Mirko Molinari said: “Energy storage will help balance supply and demand close to real time, avoiding frequency drifts and supporting the mid-term response to grid imbalances.

“The flexibility it offers smooths the fluctuating nature of renewable energy, provides quick reserves when needed, stores excess energy generation and much more. Energy storage will enable a more efficient system for a more reliable supply of electricity to consumers.”

Based in the Midlands, the system is expected to come online later this year and will relieve pressure on the UK grid infrastructure by providing flexibility to account for fluctuations in supply and demand.

Demand for battery storage has grown as intermittent renewable generation increases its share of the energy mix. However, GE and Arenko want to develop a long-term commercial solution to consumer needs without a reliance on subsidies or policy incentives.

GE has been involved in battery storage solutions since 2010 and has launched 19 large-scale commercial projects worldwide. Arenko was set up in 2014, and the Midlands project will be the company’s first involvement with a solution of this scale.

Arenko’s chief executive Rupert Newland added: “Arenko’s new battery system will provide much needed flexibility to the UK grid, reducing waste and helping to make energy bills cheaper for households and businesses. This project is very significant in addressing the UK’s long-term energy security concerns, enabling the transition to a low carbon energy future.

“As a leading owner and operator of grid scale battery systems in the UK, we are delighted to have established this strategic alliance with GE to deliver large scale battery energy storage projects. We share the same focus and commitment to the sector and we have been very impressed by GE’s world class technology and project delivery of energy storage systems across the globe.”

Stored credit

The first few months of 2018 have provided a boon for UK energy storage solutions. The Government-backed Faraday Institution will provide £42m for energy storage research and electric vehicle (EV) battery development.

FWCS considering STEAM school at Electric Works

Journal Gazette

Fort Wayne Community Schools is considering classroom space at Electric Works, the sprawling former General Electric campus being renovated for multi-purpose use.

A letter of intent has yet to be signed, but the vision is for a STEAM school to be operated by FWCS on Electric Works’ west campus, said Kevin Erb of Ferguson Advertising, the local firm working with the development group. STEAM stands for science, technology, engineering, arts and math.

The letter of intent has to be approved by the district’s board, which Erb said he expected soon.

The idea is in line with past statements by the district. Superintendent Wendy Robinson, accompanied by children from Fairfield Elementary School, was at last year’s announcement revealing plans for the site. District spokeswoman Krista Stockman later said Robinson attended for the education possibilities.

The STEAM school, for grades 6 through 12, would be similar to FWCS’ Career Academy at Anthis, which offers experience in various fields, but would not have the same programs, Stockman said Friday. It would be open not only to FWCS students but to others from public and private schools in northeast Indiana.

The emphasis would be on project-based, hands-on learning, she said, “all those things we’re trying to implement regardless of where our kids are in school so that they can be adaptable and ready for a future work environment that’s going to change rapidly.”

“Even though the students aren’t necessarily directly interacting with the community college and Parkview, it is in the same environment so they do have some interaction and we do have access to other experts nearby when and if we need them,” Stockman said.

Education is a huge component of Electric Works, which would allow for a “holistic, comprehensive experience,” for students in the FWCS program, Erb said. In addition to school “they’re going to be exposed to STEAM curriculum that can be real-world based experiential that’s a really exciting model that we’ve seen in other parts of the country.”

“Even though the students aren’t necessarily directly interacting with the community college and Parkview, it is in the same environment so they do have some interaction and we do have access to other experts nearby when and if we need them,” Stockman said.

Cross Street Partners, a Baltimore firm, is partnering with two Indiana developers on the Electric Works project: Decatur firm Biggs Development, headed by Kevan Biggs, and Indianapolis firm Greenstreet Limited. Plans for the first phase, which would transform the buildings west of Broadway, will cost $214 million.

The overall vision of Electric Works has a district that would provide a hub of innovation, entrepreneurialism, education and research.

Indiana Tech announced in December it intends to lease a portion of the site, which includes plans for residential, retail, office and education space. The school will rent 10,000 square feet on the west side of the campus. Officials said they are exploring options for how to use the space.

General Electric Company Stock Is Worth the Risk

JAMES BRUMLEY, InvestorPlace

In mid-December, I made a point of saying General Electric Company (NYSE:GE) was a buy, not because the company was facing an unexpectedly bright future, but because the beat-down of GE stock had become excessive.

If nothing else, relatively new CEO John Flannery was making some tough-but-good decisions that would put the iconic company back on a bullish track that few were expecting it to find anytime soon.

Since then, the company disclosed that its insurance division of its remaining financial arm will be booking a $6.2 billion charge stemming from what was, ultimately, a mathematical mistake. In the meantime, the SEC has decided that matter is worth a closer look. General Electric stock is down about 9% since my call in December, with the prospect of being removed from the Dow Jones Industrial Average weighing on shares.

Nevertheless, I’m sticking with my original thesis. If you can stomach the risk and deal with the inevitable volatility, this is a name worthy of a little bit of your speculative money.

The Game Is Afoot
I said it before, but it merits repeating now: if you’re looking for a strong fundamental argument to support my bullish case on GE stock, don’t hold your breath. Sales are barely going to grow this fiscal year or next and earnings are stagnant as well. The company’s got problems galore.

That superficial picture didn’t improve with its recently reported fourth quarter numbers either. Stifel Nicolaus analyst Robert McCarthy called them “messy, underwhelming” results and nobody argued his assessment.

Problem is, for better or worse, that’s not how the modern market works.

Reality check: Stocks don’t trade based on trailing fundamentals. They don’t even always trade on forward-looking forecasts. Mostly, they trade based on what investors expect other investors to feel about a stock at X date in the future.

It certainly makes things interesting and, often, tough. If you know those are the unspoken rules of the game, though (and right now, for GE stock, they are), then you know the worst-case scenario is already priced in. You won’t get the bullish green light from actual results until well after the fact.

I take some comfort in knowing that Gamco Investors’ Mario Gabelli sees the same outcome that I do on the horizon. He recently added $40 million worth of GE stock to an existing position, suggesting shares could be trading in the $20’s again within a couple of years. Truth be told, though, that’s not the only — or prevailing — reason I’m optimistic, despite the backdrop of pessimism. I’m also bullish because (in all seriousness) the market absolutely hates GE stock here.

The specifics: On a scale of 1 to 5 (where 5 is a “sell” and 1 is a “strong buy”), General Electric holds an average rating of 2.7, which is just a tad better than a “hold”. Knowing the implicit bullish bias analysts tend to harbor, however, that’s the professionals’ unspoken equivalent to a “steer clear” recommendation. It’s compelling, because effectively, there’s not a lot more room for downgrade-driven downside.

Another Shoe To Drop At GE?

Seeking Alpha

GE’s Q4 Industrial profit fell 39% Y/Y due to problems in Power Systems and a decline in Transportation.

Power is being disrupted by Renewable Energy and Transportation.

The SEC is investigating GE’s methodology for determining its insurance reserves. This could be the next shoe to drop.

GE remains a Sell.

General Electric (NYSE:GE) reported Q4 revenue of $31.4 billion and EPS of -$1.23. The company missed on revenue and earnings, but gave expected adjusted earnings for 2018 of $1.00-1.07, which was similar to a consensus of $1.06. However, its reserving practices for long-term care policies could be the next shoe to drop for the industrial giant.

Power’s Demise Continues
Revenue for GE’s core Industrial products grew 3% Y/Y. The results were not totally apples to apples, as Oil & Gas revenue included its merger with Baker Hughes (NYSE:BHGE) – GE’s majority stake in BHGE’s revenue was $5.8 billion, up 69% Y/Y. If you back out the results of Oil & Gas, then Industrial revenue would have fallen by 5% Y/Y. This could be the new normal for the former bellwether which is now subjected to the vagaries of the global economy.

General Electric (NYSE:GE) reported Q4 revenue of $31.4 billion and EPS of -$1.23. The company missed on revenue and earnings, but gave expected adjusted earnings for 2018 of $1.00-1.07, which was similar to a consensus of $1.06. However, its reserving practices for long-term care policies could be the next shoe to drop for the industrial giant.

Power’s Demise Continues
Revenue for GE’s core Industrial products grew 3% Y/Y. The results were not totally apples to apples, as Oil & Gas revenue included its merger with Baker Hughes (NYSE:BHGE) – GE’s majority stake in BHGE’s revenue was $5.8 billion, up 69% Y/Y. If you back out the results of Oil & Gas, then Industrial revenue would have fallen by 5% Y/Y. This could be the new normal for the former bellwether which is now subjected to the vagaries of the global economy.

Equipment orders were down 5%, organically driven largely by a decline in Power on lower aerospace orders and gas turbines. Lower orders from Power were partially offset by Healthcare, which saw orders increase by 9%. Services revenue also was off 5% driven by Power, and offset by growth in Aviation, Renewables and Healthcare.

The decline in services revenue is particularly damaging because it was expected to be a catalyst for GE’s $10 billion acquisition of Alstom’s (OTCPK:ALSMY, OTCPK:AOMFF) power business. The transaction was expected to create a turbine-services backlog of $50 billion and about $3 billion in cost synergies. It appears the services backlog may not materialize like previously thought. Also of note is that Transportation revenue was down 20% on lower equipment volume. Going forward, top line growth could be determined by the continued demise of Power and whether other segments can hold the line.

Segment Profit Off 39%
GE’s Industrial segment profit of $3.5 billion was down 39% Y/Y. The company’s profit margins fell from 17% in Q4 2016 to 10% in the most recent quarter. There was some noise related to a $105 million loss at Oil & Gas – ex-Oil & Gas, the company’s segment profit margin would have been about 13%. Segment profit for Power was $260 million, down 88% Y/Y. The shift in demand for heavy-duty gas turbines from 46 gigawatt to 40 gigawatt has been well-documented. However, Power is being disrupted by a structural shift to renewable energy. GE’s Renewable Energy segment grew segment profit 25% Y/Y.

Power had a segment profit margin of 19% in Q4 2016 versus 3% in the most recent quarter. Renewable Energy had a 7% profit margin in the most recent quarter. I anticipate more of GE’s energy business will shift to Renewable Energy and the segment will experience high-single digit margins for a sustainable period.

Whether cost take-outs and growth in other segments can offset a decline in Power’s segment profit remains to be seen. In Q4, Healthcare demonstrated double-digit growth in segment profits, while Transportation fell by 40% Y/Y. GE’s cyclical businesses appear to be subjected to the vagaries of the global economy. That is a scary thought given that central bankers could soon end their stimulus packages aimed at propping up the global economy.

Another Shoe To Drop?
In addition to the Power segment, GE Capital could be another cause for concern. GE recently announced it needed to make $15 billion in reserve contributions to its insurance operations over the next seven years. The lion’s share of the reserve increases were related to long-term care, which has suffered from an aging population and more claims than anticipated. The additions to reserve could hurt GE’s cash flow in the near term.

Now, the SEC is investigating the company’s internal controls and bookkeeping pursuant to its insurance reserves:

Around the insurance industry, long-term care policies have been hurt by soaring healthcare costs and longer life expectancies. Other insurance companies have been forced to book losses in recent years.

But it wasn’t until last week that GE announced a $6.2 billion hit and warned it will devote $15 billion to boost insurance reserves.

GE said the SEC is probing “the process leading to the insurance reserve increase” as well as the fourth quarter loss.

Lynn Turner, former chief accountant at the SEC, said the insurance problems raise questions about GE’s controls and bookkeeping.

“GE seems to be way behind the 8-ball on this. Others have been boosting reserves and GE hasn’t,” Turner said.

Market chatter suggests rising payouts for long-term care providers has been known throughout the industry. If GE has been late to increase its reserves, then the SEC might want to know why. At a minimum, an investigation could cause a distraction for management when it can least afford it. It also could cause GE to change its reserving practices, or cause the SEC to potentially look askance on other reserving or revenue recognition practices at the company.

Conclusion
Problems at GE Capital and margin erosion at Power make GE a Sell.

Can GE Bring Good Things to Its Business Once Again?

Wharton University
It would have been considered a turbulent stretch for any company, but the recent fall of General Electric has struck many as especially unsettling. The venerable multinational firm is experiencing a cash crunch, has seen the evaporation of more than $100 billion in market value over the past year, and recently cut its dividend for only the second time since the Great Depression. “Downright staggering,” is how one analyst quoted in a December Barron’s article described GE’s stock decline of more than 40% in a year when its Dow Jones brethren added 25% in value.

The article’s headline asked the question on the mind of many: “General Electric: Where’s the bottom?”

Poor timing has something to do with GE’s troubles, says Wharton emeritus management professor Marshall W. Meyer, noting its move into energy as the sector has slumped. But GE’s woes also beg a larger question, he says. “GE is the last of the conglomerates, and there’s a large literature that frowns on unrelated diversification,” he says. “There was a while when we applauded the conglomerates, that goes back to the 1970s. But they’ve almost all dropped away and — surprise — the last one runs into trouble. And so, what business are you in?”

It’s a question the company, with new leadership now in place, is asking itself. John L. Flannery took over as CEO a few months ago with the tall order of restoring stability and growth following the controversial leadership of Jeffrey Immelt, who defended his more than decade-and-half tenure in a Harvard Business Review essay as “one of progress versus perfection. The outcomes of my decisions will play out over decades, but we never feared taking big steps to create long-term value.”

“It’s a fascinating case,” says Wharton management professor John R. Kimberly, “with lots of questions about [Immelt’s] approach to transformation, his beliefs about the importance of personal fortitude, and, ultimately, about the viability of the hugely complicated organizational entity that GE has become in a world that is changing so fast. The notion that GE can ‘pivot,’ for example, seems a stretch at best.”

So jarring have the events of the past few years been that many wonder whether General Electric’s best days are behind it. Says Meyer: “At some point, there is a question of whether the breakup value is larger than the share price, and someone comes along and separates out the pieces and sells them off or keeps them. There are a lot of assets in the company — the jet-engine business, the power business, the medical business. These are the core businesses, and they basically look pretty good in the long run, so there is value there. But how they grow the organization to realize the value is another issue entirely. Here’s my worry. The focus on bottom-line metrics, on short-term value for the shareholder, can’t be good for long-term health for the business. It’s an old story.”

Wharton emeritus professor George Day, who has consulted with GE in the past, is “as shocked as anyone to see the collapse of the stock price recently,” but beyond the short-term problems, which he says are serious, there is cause to be bullish. “I think the more interesting story is about their prospects for the future. [Because it is] such a complex and diversified firm, most people struggle to really understand GE. There’s always been a diversification discount to their share price they’ve long wrestled with. My sense is that it’s going to be a slow turnaround. They’ve probably hit close to the bottom now, and I would argue that there is significant upside from what they have already put in place.”

Day adds: “It goes back to the question that people have struggled with as they try to understand GE, which is: what is the glue that keeps the pieces together? How much added value is there to combining rather than separating the pieces?”

GE is now looking at that question. Just in the past few days, breaking up one of America’s oldest and most widely admired conglomerates has emerged as a distinct possibility as Flannery himself has signaled it as an option.

“No one likes to look at their stock price go down and say, ‘I feel good about that.’ It goes without saying,” said Flannery on CNBC in November, just after taking over GE. “But there’s a lot of pent-up energy and desire for redemption and improvement, so my job is to channel that as a leader. And obviously, people look at how I feel about the prospects ahead, and I recognize the heavy lift, but I feel great about the prospects.”

“The focus on bottom-line metrics, on short-term value for the shareholder, can’t be good for long-term health for the business. It’s an old story.”

On leadership, Kimberly says it is easy to catalogue the negatives — a “stock price way down, dividend slashed by 50%, the usual press frenzy when a visible CEO exits under duress, etc.” But he points out that it is also important to remember the macro forces Immelt encountered, and how they differed from those encountered by his superstar predecessor, Jack Welch.

“I’ve always believed that while leaders certainly make a difference – and frequently a substantial difference – in how and why firms performs as they do, there is a tendency to over-attribute outcomes to their impact,” says Kimberly. “Given that it is much easier – and more newsworthy – to focus on what leaders say and how they manage their public face than to ask the larger questions; and given that answers to the larger questions are often not immediately available or only become evident long after the fact, this is not surprising.

“None of this is to suggest that GE under Immelt was a high performer and that the negative press that surrounded the announcement of his exit from the CEO position was undeserved,” Kimberly continues. “But it is to suggest that both his critics and his supporters are partly right. It is a fact – assuming that facts still matter – that GE’s financial performance on Immelt’s watch was disappointing, to say the least.

And it is a fact that GE has invested heavily in attempting to transform itself into an enterprise designed to thrive in the 21st century, with all that that implies. Will the transformative bets pay off? How will John Flannery reconfigure what Immelt started? And then, ultimately, how will his legacy be viewed? That will depend largely on who you ask and when, because the payoffs from transformation won’t be visible any time soon.”

Could the right leadership have averted some of the missteps of recent years? There is no shortage of rueful decisions and deferred maintenance – matters that have enormous consequences for GE’s nearly 300,000 employees, hundreds of thousands of retirees and millions of shareholders. GE began to fall behind on its pension obligation after the recession, and by the end of 2016 had run up a shortfall of $31.1 billion — the biggest shortfall among S&P companies, according to a Bloomberg analysis. To meet its pension obligation in 2018, the company plans to take out $6 billion in debt.

GE’s decision in 2015 to buy the power business of Alstom, maker of coal-fueled turbines for power plants, is now seen as badly timed and, with a $9.5 billion price tag, a conspicuous case of overpaying. “If we could go back in the time machine today, we would pay a substantially lower price than we did,” Flannery told CNBC.

Day says the question of the company’s lack of focus became a pressing issue when they had lines as disparate as NBC and major appliances, “which did not fit well at all. And then GE Capital kind of swallowed the company.” After a review of GE Capital, the company recently decided to take a $6.2 billion charge on the finance unit.

Flannery plans to sell off, over the next year or two, about $20 billion in assets, including GE’s lighting division. That act, more than any other, telegraphs a willingness to forfeit pride of legacy for new frontiers. It means the company that traces its roots to Thomas Edison would no longer sell light bulbs.

Evolving the Culture

Once widely admired for its ability to “bring good ideas to life,” General Electric under Immelt started calling itself “a 125-year-old start-up … a digital industrial company that’s defining the future of the Internet of Things.” Some believe that the new corporate aphorism is becoming more than just an expression of aspiration. But change requires a cultural shift, and Meyer says the sale of GE Appliances to Chinese manufacturer Haier in 2016 (for $5.6 billion) has been instructive about what is needed.
It would have been considered a turbulent stretch for any company, but the recent fall of General Electric has struck many as especially unsettling. The venerable multinational firm is experiencing a cash crunch, has seen the evaporation of more than $100 billion in market value over the past year, and recently cut its dividend for only the second time since the Great Depression. “Downright staggering,” is how one analyst quoted in a December Barron’s article described GE’s stock decline of more than 40% in a year when its Dow Jones brethren added 25% in value.

The article’s headline asked the question on the mind of many: “General Electric: Where’s the bottom?”

Poor timing has something to do with GE’s troubles, says Wharton emeritus management professor Marshall W. Meyer, noting its move into energy as the sector has slumped. But GE’s woes also beg a larger question, he says. “GE is the last of the conglomerates, and there’s a large literature that frowns on unrelated diversification,” he says. “There was a while when we applauded the conglomerates, that goes back to the 1970s. But they’ve almost all dropped away and — surprise — the last one runs into trouble. And so, what business are you in?”

It’s a question the company, with new leadership now in place, is asking itself. John L. Flannery took over as CEO a few months ago with the tall order of restoring stability and growth following the controversial leadership of Jeffrey Immelt, who defended his more than decade-and-half tenure in a Harvard Business Review essay as “one of progress versus perfection. The outcomes of my decisions will play out over decades, but we never feared taking big steps to create long-term value.”

“It’s a fascinating case,” says Wharton management professor John R. Kimberly, “with lots of questions about [Immelt’s] approach to transformation, his beliefs about the importance of personal fortitude, and, ultimately, about the viability of the hugely complicated organizational entity that GE has become in a world that is changing so fast. The notion that GE can ‘pivot,’ for example, seems a stretch at best.”

“The notion that GE can ‘pivot’ seems a stretch at best.” –John R. Kimberly

So jarring have the events of the past few years been that many wonder whether General Electric’s best days are behind it. Says Meyer: “At some point, there is a question of whether the breakup value is larger than the share price, and someone comes along and separates out the pieces and sells them off or keeps them. There are a lot of assets in the company — the jet-engine business, the power business, the medical business. These are the core businesses, and they basically look pretty good in the long run, so there is value there. But how they grow the organization to realize the value is another issue entirely. Here’s my worry. The focus on bottom-line metrics, on short-term value for the shareholder, can’t be good for long-term health for the business. It’s an old story.”

Wharton emeritus professor George Day, who has consulted with GE in the past, is “as shocked as anyone to see the collapse of the stock price recently,” but beyond the short-term problems, which he says are serious, there is cause to be bullish. “I think the more interesting story is about their prospects for the future. [Because it is] such a complex and diversified firm, most people struggle to really understand GE. There’s always been a diversification discount to their share price they’ve long wrestled with. My sense is that it’s going to be a slow turnaround. They’ve probably hit close to the bottom now, and I would argue that there is significant upside from what they have already put in place.”

Day adds: “It goes back to the question that people have struggled with as they try to understand GE, which is: what is the glue that keeps the pieces together? How much added value is there to combining rather than separating the pieces?”

GE is now looking at that question. Just in the past few days, breaking up one of America’s oldest and most widely admired conglomerates has emerged as a distinct possibility as Flannery himself has signaled it as an option.

Leadership and ‘the Heavy Lift’

“No one likes to look at their stock price go down and say, ‘I feel good about that.’ It goes without saying,” said Flannery on CNBC in November, just after taking over GE. “But there’s a lot of pent-up energy and desire for redemption and improvement, so my job is to channel that as a leader. And obviously, people look at how I feel about the prospects ahead, and I recognize the heavy lift, but I feel great about the prospects.”

“The focus on bottom-line metrics, on short-term value for the shareholder, can’t be good for long-term health for the business. It’s an old story.” –Marshall W. Meyer

On leadership, Kimberly says it is easy to catalogue the negatives — a “stock price way down, dividend slashed by 50%, the usual press frenzy when a visible CEO exits under duress, etc.” But he points out that it is also important to remember the macro forces Immelt encountered, and how they differed from those encountered by his superstar predecessor, Jack Welch.

“I’ve always believed that while leaders certainly make a difference – and frequently a substantial difference – in how and why firms performs as they do, there is a tendency to over-attribute outcomes to their impact,” says Kimberly. “Given that it is much easier – and more newsworthy – to focus on what leaders say and how they manage their public face than to ask the larger questions; and given that answers to the larger questions are often not immediately available or only become evident long after the fact, this is not surprising.

“None of this is to suggest that GE under Immelt was a high performer and that the negative press that surrounded the announcement of his exit from the CEO position was undeserved,” Kimberly continues. “But it is to suggest that both his critics and his supporters are partly right. It is a fact – assuming that facts still matter – that GE’s financial performance on Immelt’s watch was disappointing, to say the least.

And it is a fact that GE has invested heavily in attempting to transform itself into an enterprise designed to thrive in the 21st century, with all that that implies. Will the transformative bets pay off? How will John Flannery reconfigure what Immelt started? And then, ultimately, how will his legacy be viewed? That will depend largely on who you ask and when, because the payoffs from transformation won’t be visible any time soon.”

“What is the glue that keeps the pieces together? How much added value is there to combining rather than separating the pieces?” –George Day

Could the right leadership have averted some of the missteps of recent years? There is no shortage of rueful decisions and deferred maintenance – matters that have enormous consequences for GE’s nearly 300,000 employees, hundreds of thousands of retirees and millions of shareholders. GE began to fall behind on its pension obligation after the recession, and by the end of 2016 had run up a shortfall of $31.1 billion — the biggest shortfall among S&P companies, according to a Bloomberg analysis. To meet its pension obligation in 2018, the company plans to take out $6 billion in debt.

GE’s decision in 2015 to buy the power business of Alstom, maker of coal-fueled turbines for power plants, is now seen as badly timed and, with a $9.5 billion price tag, a conspicuous case of overpaying. “If we could go back in the time machine today, we would pay a substantially lower price than we did,” Flannery told CNBC.

Day says the question of the company’s lack of focus became a pressing issue when they had lines as disparate as NBC and major appliances, “which did not fit well at all. And then GE Capital kind of swallowed the company.” After a review of GE Capital, the company recently decided to take a $6.2 billion charge on the finance unit.

Flannery plans to sell off, over the next year or two, about $20 billion in assets, including GE’s lighting division. That act, more than any other, telegraphs a willingness to forfeit pride of legacy for new frontiers. It means the company that traces its roots to Thomas Edison would no longer sell light bulbs.

Evolving the Culture

Once widely admired for its ability to “bring good ideas to life,” General Electric under Immelt started calling itself “a 125-year-old start-up … a digital industrial company that’s defining the future of the Internet of Things.” Some believe that the new corporate aphorism is becoming more than just an expression of aspiration. But change requires a cultural shift, and Meyer says the sale of GE Appliances to Chinese manufacturer Haier in 2016 (for $5.6 billion) has been instructive about what is needed.

“[In] the era of the Internet you move quickly or get left behind, and there is a question of whether the GE culture — which was so fabulous two decades ago — fits the new era.” –Marshall W. Meyer

“GE culture is known world-wide as the model of methodical operations as well as methodical personnel management, but Haier buys it and their management system is very different,” says Meyer, who has studied Haier for nearly two decades. “They cobbled together a Chinese term, rendanheyi, which means either people- or customer-integration, the basic idea being that anyone who makes anything has to have a direct line of sight to the customer. There are two mantras – one is zero distance to the customer, and the other is compensation as a function of the value created for the user – Haier calls it pay by user. Now, GE is very methodical and process-oriented, while the new model is almost the opposite, because it demands speed, it demands agility, it’s comfortable with experimentation, with entrepreneurial ventures.

“From the Haier perspective, in the era of the Internet you move quickly or get left behind, and there is a question of whether the GE culture — which was so fabulous two decades ago — fits the new era,” Meyer notes. “I very much hope it can.”

Flannery says the new era at GE will focus on three lines of business: energy, aviation and medical technology. In fact, there is quite a bit of connective tissue GE brings to these disparate businesses, says Day. “The first one is a long-term willingness to invest in talent development, particularly executive talent development. They’ve always had a pretty deep bench. The second one is a strong problem-solving culture. Third, they have rigorous financial controls supporting a strong focus on earnings. The fourth one is to me the big long-run play, which is for at least five years they have focused on using digital technologies to integrate and extend the complex systems in their core businesses. As a glue it means that they can take everything from big data and data analytics, to the Internet of Things, to AI and blockchains, and deploy them for complex business solutions, which I think is an exciting long-run opportunity.”

GE, for instance, has recently upped its ownership in Arcam AB, a Swedish 3D printing company, from 77% to 95%. The move, combined with the acquisition of another European 3D printing firm, will support a number of GE businesses, including its jet-engine manufacturing business. A decade’s worth of research and development appears to be on the verge of paying off for GE Aviation. A new GE Advanced Turboprop (ATP) engine has been produced using 35% 3D-printed and related techniques, reducing 855 components to just 12, making it lighter and more fuel-efficient. The engine completed its first-run testing in Prague in December.

Day see the potential for GE to become a leader in digitally integrated systems – scenarios in which “they can put together hardware with software and build deep relationships with customers and provide the financing, and then offer risk-sharing. Customers love it when you can figure out a way to share some of their operating risks,” he says.

“Think of power-by-the-hour for aircraft engines – they shifted from a purchase-lease to a pay-for-what-you-use business model. I think you’ll see that in some of their other businesses. Why couldn’t you, for example, in medical imaging systems have a model where customers pay only for the images that they take? You’ve got these digital capabilities on hand, and they’ve invested a lot in creating these capabilities in Silicon Valley. It is getting harder to find the scarce talent you need to do a digital deployment, because there are not that many people good with AI or big data analytics. There’s a big talent war going on out there. But I think in large systems, GE stands a good chance of winning the talent war. As immigration shuts its doors from talented people outside, GE can go to a number of facilities in Canada, in Europe and Asia. They have a global advantage.”

Day continues: “I can’t think of another company as well positioned to participate in the big Internet of Things, to create digitally integrated solutions across as many sectors and the ability to share their learnings. While they are pretty focused on quarterly earnings, they also famously want to play in the long-run – and have to, given the scale of investments they have to make, which raises the barrier of entry for others.”

While GE’s latest quarterly earnings report didn’t surprise analysts — it had a $9.8 billion loss in the last quarter — the company also disclosed that it is facing an S.E.C. accounting inquiry into its insurance business. General Electric faces “very difficult short-term problems,” Day concedes. But those eventually will be fixed. “Over the long term, many of the pieces appear to be in place.”

Before locomotives, GE built a town

Burlington County Times

When Pennsylvania General Electric Co. built the first buildings of its mammoth factory in Lawrence Park in 1910, there was no Lawrence Park.

Attorney James Sherwin, on the company’s behalf, had bought 800 acres of farmland east of Erie in what then was Millcreek Township. General Electric would need land not only for its factory but for a town to house its workers.

The only transportation from Erie was seasonal trolley service from Perry Square to Grove House Park, an amusement park fronting Lake Erie at Four Mile Creek. The people who worked at the plant would have to live close by.

Sherwin and GE architect Clement Kirby took pains on the town design, traveling to England to see “garden cities” and later enlisting the aid of John Nolen, now recognized as the nation’s first city planner.

Nolen’s work in Lawrence Park is the keystone of a Lawrence Park Historical Society application for National Register of Historic Places designation for the town that GE built.

The Pennsylvania Historical and Museum Commission will consider the application Feb. 6. If approved, it moves on to the National Parks Service for final approval.

“Our history is unique,” said Marjorie McLean, a historical society director and author of “Lawrence Park” in Arcadia Publishing’s “Images of America” series. “It’s a matter of pride for us, I think, to have it recognized.”

Nolen was at work in Erie at about the same time that Lawrence Park was designed, on the city’s “Greater Erie” plan. The Philadelphia native is famed for residential neighborhoods laid out with sidewalks, streetlights, parks, trees and open land for churches and schools.

A large lot set aside by Nolen for a school in Lawrence Park by 1913 was the site of the brick Priestley Avenue School.

Congregations were offered donations to build churches. One of the early takers was St. Mary’s Episcopal Parish, which built a combined parish hall and church on Silliman Avenue in 1914.

The original town was named for War of 1812 naval hero James Lawrence and laid out along streets named for inventors: Rankine, Silliman, Smithson, Field and Bell, according to McLean’s history.

There were 325 original home lots, most measuring 40 by 125 feet, according to a broadside in the historical society collection advertising “the opening sale of Lawrence Park” the week beginning May 29, 1911.

Lots were laid out to include front yards at least 25 feet deep from street to porches and large back yards for gardens.

Sale price was $300 to $1,500.

Commercial lots along Iroquois Avenue and Main Street sold for $800 to $1,500.

“Property must be seen to be appreciated,” according to advertisements by Erie land agent W.S. Pole in the Erie Daily Times preceding the sale. Photographs showed dirt fields labeled “Rankine Street” and “Main Street leading to east main entrance General Electric Works.”

In two days, 10 percent of the lots sold, and, better, “more than 30 percent of the purchasers have obligated themselves to commence construction of homes within the next 30 days,” the Times reported May 31, 1911.

Buyers committing to build within six months saved 20 percent on their lots.

Homes were served by electricity, water, sewer and gas.

Lawrence Park was expanded in 1917 to accommodate a growing number of employees as GE increased production during World War I. Nolen designed the new neighborhood, including the town’s signature row houses.

His role in Lawrence Park’s design wasn’t realized until recently when consultants hired by the historical society to write the application for National Register designation recognized Nolen’s name. After his work in Lawrence Park, Nolen went on to design communities across the country. His papers, including references to his work in Lawrence Park, are preserved in the Cornell University library.

“We had one or two letters that mentioned this guy, but the name didn’t mean anything to us,” Lawrence Park Historical Society President Anna Mae Van Dyne said. “The consultants got excited because Nolen was involved. In all these years doing research, we didn’t realize who he was or that he was involved in all of this.”

Nolen’s “industrial village” design embraced earlier “garden city” concepts, added green space between factory and town and included homes for factory managers next door to employees.

GE in later years built a community center on East Lake Road. GE Athletic Association provided leisure-time sports and activities.

In recent years, as GE Transportation pulled work and jobs from the local plant, “The Park,” as Nancy Wassell and other Lawrence Park natives call the town, has necessarily become less reliant on the behemoth next door.

“Just on the street where I live, people work at a lot of different places now,” McLean said, and fewer and fewer at “the GE,” as Lawrence Park residents refer to the plant. “But we still feel that sense of community.”