Industrials

10 Harsh Realities GE Shareholders Will Have to Face From 2018 to 2020

3. Cost Cuts and Restructuring Charges Will Mount

It has been reported that GE has reviewed layoffs for any non-revenue segments within its units. GE’s layoffs are probably only going to grow, with thousands of employees already targeted. The company has close to 300,000 units, and Flannery has indicated that there are no sacred cows and that the company is too geographically spread out.

Flannery also has said that the first year of restructuring will be tough, and it may take years to get it right, but this means ongoing layoffs either in groups or on an individual basis after internal-unit and external-unit reviews. That also comes with ongoing restructuring charges ahead. GE operates in more than 180 countries, and that can become an expensive footprint with many laws and regulations to have to keep up with.

4. Adding Businesses and Cutting Businesses Will Continue

Immelt by and large pursued bolt-on acquisitions in his tenure, but GE underwent massive change. GE is now far less of a consumer credit card company and bank. Its finance arm has been chopped down massively, and it has sold its appliances, NBC/Universal, other media and other units. And GE has grown in health care and in energy.

Flannery has said that there are no sacred cows, and the current figure used is that $20 billion worth of GE operations businesses could be sold or spun off. Flannery is without emotion when it comes to the existing GE industrial portfolio. The case is easy to make that GE eventually could unload its majority stake of Baker Hughes, A GE Company (NYSE: BHGE) after just having completed that acquisition.

There are literally endless lines of products that GE could sell off that are not deemed to be core. With such a large international footprint and with layoffs and restructuring already touted, there are going to be some continued unit or product sales. The question now is whether Flannery uses the restructured company ahead as an acquisition vehicle to further solidify its areas of strength.

5. The Case for a GE Breakup Will Be Made Much Louder 

There has been talk for two decades about GE’s conglomerate structure being too hard to manage and that the company should be broken up. Trying to understand GE’s balance sheet has always been more than difficult. And the cross-selling among the units and GE Capital have always been strong. The calls for a breakup of GE will be made by the media and by outsiders, perhaps by even more vocal activist investors.

There is a serious problem in breaking up GE. The cash flow pictures are harder to communicate and the organizational structure has shared overlap to the point that it might be more expensive for some of these big units to operate independently than if they were not their own businesses. You are going to hear a lot about this thought in the months ahead, so just get used to it. Flannery told CNBC in an interview that you do not have to separate units to have them run better, but if there are no sacred cows then anything (including a break-up) may be possible in the years ahead.

6. Out With the Old Guard, Redux …

The saying “The king is dead. Long live the king!” will not apply at GE for some time. Flannery has systematically forced out some of the unit-heads who presided under Immelt. Others have left on their own, which is typical after many candidates are disappointed that they were not chosen as the heir to the CEO throne. The board of directors is going to keep changing as well. There is even a new chief financial officer, which can spook even the investors who have the highest conviction that GE’s best days are ahead.

Just don’t think for a second that the remaining people from the old guard are going to be kept around indefinitely. There may be a few people who are not purged, but some very key people of the past decade may be planning an early retirement from GE in the coming months or years. Some of those exits and retirements likely will be far from voluntary.