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General Electric $GE has responded aggressively after it's worse than expected Q317 earnings on Monday. GE has cut its dividend in half, slashed it's board from 16 to 12 and lowered its Q417 outlook. $GE will have a renewed focus on healthcare, aviation and energy.

GE CEO FlanneryNew GE CEO Flannery Putting his own stamp on the company

"The GE of the future is going to be a more focused industrial company. It will leverage a lot of game-changing capabilities." CEO John Flannery at GE's investor day Monday

Reaction: General Electric $GE Market Open $19.86 -0.63 -3.07%

Investor Day Presentation Highlights

  • "This is the opportunity really of a lifetime to reinvent an iconic company," Flannery
  • Renewed focus on healthcare, aviation and energy
  • "I was forced to confront a lot of the sort of deeper questions about the company," Flannery 
  • Revised adjusted earnings for the year ahead between $1 and $1.07 a share and free cash flow still at significantly reduced levels of $6 billion and $7 billion, which it pledged to improve.
  • $GE looking to exit more than $20 billion of assets as it looks to sharpen
  • Slashed its dividend in half
  • $GE set a $3 billion share buyback priority
  • $GE will borrow $6 billion to take advantage of the current rate environment to shore up its pension plan shortfalls
  • The board of directors will be reduced from 18 to 12, with three new members slated "with relevant industry experience."
  • Directors will have 15-year term limits.
  • Employee bonuses also will be restructured, with elimination of the three-year cash long-term performance awards and a switch to a program that conforms to "market norms."
  • The dividend allocation will be $4.2 billion for 2018, pushing it from above 100 percent of free cash flow to 60 percent to 70 percent, and the dividend yield from 4.7 percent to 2.3 percent. 

Just how Challenged Were GE's Third Quarter Earnings?

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$GE said its orders improved 11% in 3Q17 to $29.8Bil, while Backlog increased 3% to $328.0Bil.

  • Revenues in the oil and gas segment rose 81% year over year in the quarter from $2.96 billion to $5.37 billion, reflecting the inclusion of Baker Hughes. The Baker Hughes acquisition also accounted for a 14.4% increase in the company’s consolidated revenues.
  • Power segment revenues fell 4% to $8.68 billion and profits tumbled a staggering 51%. In its presentation, GE referred to “ongoing business challenges” in the power segment.
  • Renewable energy revenues were up 5% to $2.91 billion and profits rose 27% to $257 million. Operating profit margin rose 1.5 points to 8.8%.
  • Revenues in the company’s aviation segment sales rose 8% at $6.82 billion and profits rose 12% to $1.68 billion. Operating profit margin rose 0.9 points to 24.6%.
  • The health care segment saw revenues rise 5% to $4.72 billion, with profits of $820 million (up 14%) and operating margin up 1.4 points to 17.4%.
  • Operating cash flow from GE’s continuing industrial operations, adjusted to exclude deal taxes and pension plan funding, fell from $2.9 billion to $1.74 billion year over year in the quarter.

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Outlook

For FY17, $GE expects adjusted earnings to be $1.05 - $1.10 per share, compared to the prior guidance of $1.60 - $1.70 per share

"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 . We are focusing on redefining our culture, running our businesses better, and reducing our complexity." Flannery said

GE At 2 Year Lows After Trend Line Break

GE Monthly 10 15 17

For our earlier forecast go here: GE Consensus Forecast

Analysts expect EPS to improve 56%  to 50 cents with revenue rising 9% to $31.92 billion.

If congress can pass regulatory rollbacks after the GOP's unsuccessful attempt to replace the Affordable Care Act the company as much to gain was the theory but the stock price shows little faith.

JPMorgan's Stephen Tusa Bearish Note on GE Last Month

Reaffirming underweight on GE stock.

After the $GE leadership moves JPMorgan issues a negative note on the company. They wrote:

"Core fundamental challenges are worse than consensus is currently discounting,"

"Not only is the baseline of the now hotly debated 'reset' likely lower, but what we think investors are ignoring is the trend line on the businesses, some of which have secular issues (i.e. implications for multiple), a hole that is unlikely to be dug out of with simple cost cuts alone," JPMorgan continued.

Note CEO John Flannery had signaled that a current EPS goal of $2 for 2018 may be too high.

Source: GE, AlphaStreet, TradersCommunity

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