There is a serious issue that is almost impossible for companies of any size to overcome. This is when they “lose their own narrative.” General Electric Co. (NYSE: GE) is a company in dire straits in 2018, and it has absolutely lost its narrative. When companies lose their narrative it also means that those outside the company have as much as or more influence than the few top leaders in the company.
GE shares were hammered last Friday after a key analyst downgrade went from bearish to even more bearish. This was over a week past earnings and the dividend cut. The report theoretically contains no new information, at least barring some more public opinions about GE’s cash flow prospects being dire enough that the report added much stronger selling pressure.
When GE hired Larry Culp as chief executive officer and fired John Flannery for acting too slowly, there was a lot of hope and excitement about the Culp transition. After all, Culp is deemed as solid when it comes to turning a large company. Now come the fears (or realization) that even the mighty Larry Culp is going to have a hard time getting the GE ship headed back in the right direction.
CNBC’s David Faber interviewed Culp on Monday, and this was Culp’s opportunity to halt the share price massacre that GE shareholders are enduring. Unfortunately, reality is continuing to weigh heavily on GE.
Culp told Faber in the interview that the company still needs to bring its leverage down but also noted that GE has plenty of opportunities to lower the leverage with asset sales. The company’s withdrawal of 2019 earnings guidance also was noted as a difficult but necessary position.
Here was how the stock market’s vote went on Monday morning: GE’s stock price dipped back under $8, and that was the first time that happened going all the way back to March of 2009, when the famous V-bottom was happening in the Dow Jones industrials and S&P 500.
Several issues were brought up in how GE would deleverage and turn around its ship. Culp’s commentary suggested:
- He won’t rush the deleveraging process, even while “feeling the pressure to move quickly and decisively.”
- There may be a possible initial public offering for GE’s healthcare business unit that Culp called “tremendous.”
- The sale of GE’s transportation business.
- The coming exit of the Baker Hughes oil and gas services unit, a deal which likely will go down as one of GE’s worst acquisitions due to timing and vulnerability.
- The solid aviation business is not high on the list of selling all or part of it in its options.
- GE is working hard with its trouble GE Power team to turn around that struggling business.
- GE has $20 billion in cash after asset sales and has used only $2 billion of its $40 billion in bank/credit lines.
Investors, both individual and institutional alike, have simply lost faith in GE. It seems that anyone new, regardless of qualifications and track records, will have a hard time righting this ship at this time. And it sure seems that a continual effort around restructuring the entire GE operation looks to be difficult (or worse) than it is just to manage the company.
When a rock solid CEO like Culp is given a chance to rectify some of the concerns and the stock still goes lower, this is a prime example of a company that has lost its own narrative.
GE shares were last seen trading down about 5% at $8.14 late Monday morning, but the stock hit a multiyear low of $7.73 after the CNBC interview. It really doesn’t matter anymore that GE shares are down from $20 last year. GE was actually a $30 stock in the earlier part of 2017.