GE to focus on three businesses; slashes dividend, profit outlook
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(Reuters) - General Electric Co (GE.N) will focus on aviation, power and healthcare, radically shrinking the most famous U.S. conglomerate into a smaller company betting on industries where it has strong technology and a large customer base.
In a plan unveiled on Monday by new Chief E xecutive John Flannery, GE cut its dividend and profit outlook in half, sending its stock down 2.7 percent, as Wall Street worried about how the slimmed down company will generate cash to justify its valuation.
âBy the numbers, we see a core operating performance that is below plan, and, currently, a consensus expectations curve that we think remains too high,â said JPMorgan analyst Stephen Tusa said.
The stock is the worst performing Dow component this year, down 35 percent through Fridayâs close.
The refocusing of the company will likely mean a sweeping sale of $20 billion (Â£15.2 billion) of assets, but GE did not detail exactly which parts of its business it plans to shed.
The dividend cut, only the third in the companyâs 125-year history and the first not in a broader financial crisis, is expected to save about $4 billion in cash annually.
GE forecast adjusted 2018 industrial free cash flow of $6 billion to $7 billion, up from an es timated $3 billion in 2017.
The move to make GE smaller and nimbler is a turnaround from the previous multi-business approach taken by former CEOs Jack Welch and Jeff Immelt.
Flanneryâs changes repudiate much of Immeltâs vision of a âdigital industrialâ company that builds software to manage and optimise GEâs jet engines, power plants, locomotives and other products.
Conglomerates are out of favour on Wall Street, where investors prefer to bet on specific industries rather than a mixed portfolio.
GE forecast 2018 adjusted earnings per share of $1 to $1.07 per share, compared with its earlier estimate of $2 per share. Wall Street was expecting $1.16, according to Thomson Reuters I/B/E/S.
The company on Monday cut its quarterly dividend to 12 cents per share from 24 cents starting in December.
GEâs dividend cut - a bid to save cash when the companyâs cash flow is deteriorating - is the third in its history, the other two cuts ca me during the Great Depression and the global financial crisis of 2007-2009.
Flanneryâs strategy is a turning point for the company, which over several decades built itself into a sprawling conglomerate with interests across media, energy, banking, aviation, railroads, marine engines and chemicals.
GE executives have said that analysts have undervalued the companyâs digital business. They argue the digital units should be valued more like Amazon.com Inc (AMZN.O), Alphabet Incâs (GOOGL.O) Google and other fast-growing tech companies.
GE will also cut its board to 12 from 18 members.
GRAPHIC-Top five dividend yields in the Dow 30: reut.rs/2zx3aoR
Reporting by Alwyn Scott in New York and Ankit Ajmera in Bengaluru; Writing by Sayantani Ghosh; Editing by Saumyadeb Chakrabarty and Bill RigbyOur Standards:The Thomson Reuters Trust Principles.0 : 0
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