Friday , July 1 2022

from being the largest company in the world to fall 86%


a giant in trouble

In June, General Electric left Dow Jones after more than 100 years as part of the selective US

In June, General Electric left Dow Jones after more than 100 years as part of the selective US. At that time, the electrical titles moved around 13 dollars and it seemed as if it was difficult for things to get worse.

However, the market has only taken five months to prove that this assumption was incorrect. Since its output from the industry's index, the company dumped 34%, and the last battle it contained came from JP Morgan, which said that the shares still did not reflect the company's situation even though they had fallen by 74% since May of 2016.

This has only been the last battle against the company, which operates close to low levels in 2009. At the beginning of the millennium, the tool was ranked as the world's highest market value bordering $ 600 million of capitalization. Now, this figure has fallen to less than $ 75,000 million, compared with more than $ 300,000, worth only two and a half years ago. So from its historical heights, operations fall by 86%.

Jack Welch was the man who cats General Electric to the top. In its two decades as CEO of the company, its value went from 13 thousand dollars to more than 400,000 dollars. One way is very different from that which has followed since its output from the electric.

According to Bloomberg data, who bought the company's share on September 7, 2001, The day he was replaced by Jeff Immelt as CEO and President, hABB suffered losses of 63% including dividends. This figure contrasts even more with the performance of the S & P 500 since then: it climbs 260% over the same period. After almost 16 years at the company's empire Jeff Immelt was replaced in August 2017 by John Flannery, just replaced by Lawrence Culp. But what are the problems with the new CEO?

1.- The high indebtedness. According to FactSet data, the company accumulates a net debt of nearly $ 100,000 million. The multinationals have set themselves the goal of reaching a debt / EBITDA quota of 2.5 times in 2020. However, with the arrival of Lawrence Culp on October 1, this goal seems to go away. "Culp's financial priorities include a rating of A – he currently has an A2 in Moodys and a BBB + in S & P – and at any time reduces his debt / EBITDA ratio to below 2.5 times. Management does not expect to achieve this by 2020. Thus, the degree of deliberation seems to have diminished, explains RBC Capital Markets.

2.- Dividend cuts. One of the actions taken by the new CEO is to once again reduce the dividend of the company. Specifically, it will allocate 4 cents per share 2019, compared with the current 48 cents. This assumes an almost anecdotal profit of 0.5% and experts believe that it has not interrupted the distribution entirely to be able to reside in the universe of funds that can only acquire titles distributing dividends.

"This cut enables the company to protect itself from forced sale, which would mean a deferral of dividends, while saving about $ 3,900 million a year," says RBC Capital Markets. By 2017, the company had reduced its dividend by half, but it seems that this move was not enough.

3.- Examination of the controller. Obviously, the company's problems are not only reduced to high debt or lower the dividend to try and embrace the same. General Electric warned in January that the US regulator (SEC) studied the accounts for its energy division and an insurance portfolio that caused a $ 6.2 billion fee. Now, the company has acknowledged that the SEC has expanded its investigation into the extraordinary fee of $ 22,000 million for its energy division.

4. A weak business. Thus, General Electric's results in the last quarter were much weaker than expected. Adjusted earnings per share amounted to $ 0.14, a decrease of 30% from analysts' estimates while billing decreased 4%. Also, without adjusting the results, the company suffered losses of $ 2.63 per title.

According to analysts, the only business that really manages the company's results is aviation, while energy, renewable and oil and gas units can not regain the right track. "You can see the same dynamics as previous quarters, which includes results in energy and renewable energies that are significantly below expectations and a good Aviation result." Without guidance, it is difficult to assess the sustainability of each division. It's not as close to being safe as bulls believe and we do not think aviation can maintain this kind of results, they say in JP Morgan.

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