After a disastrous 2017 for General Electric Company (NYSE: GE), investors hit their first 2018 bump in the road on Tuesday when the company announced it will take a $6.2 billion charge on its fourth-quarter earnings. The charges stem from an ongoing internal review of GE Capital, GE’s financial services subsidiary.
In addition to the large charge, GE Capital will be suspending its dividend payments to GE. GE stock tumbled more than 3 percent Tuesday morning following the news.
New GE CEO John Flannery, who joined the company in August, says GE’s top priority remains streamlining its business. “At a time when we are moving forward as a company, a charge of this magnitude from a legacy insurance portfolio in runoff for more than a decade is deeply disappointing,” Flannery says in a statement.
GE Capital intends to contribute roughly $15 billion to its capital reserves over the next seven years, including $3 billion in the first quarter of 2018 and $2 billion annually through 2024.
Flannery spearheaded a push for GE to cut $20 billon in non-core business units in the next couple of years. Moving forward, GE will focus primarily on its aviation, power and health care segments, Flannery says.
GE stock took a beating in 2017, finishing the year down 45 percent. Shareholders were blasted by a parade of negative headlines, including consistent earnings misses, aggressive guidance cuts, a 50 percent dividend reduction and a long list of analyst and credit downgrades. General Electric finished 2017 as the worst-performing stock in the Dow Jones industrial average and one of the 10 worst performers in the entire Standard & Poor’s 500 Index.
Unfortunately, even at a steep discount, GE stock may still not be a bargain given its ongoing problems. The silver lining, at least, may be that the stock’s downside is limited.
Tigress Financial analyst Ivan Feinseth says the restructuring plan and the dividend represent the correct long-term strategy for GE, even if shareholders won’t see an immediate impact to the bottom line.
“We believe it will take some time for the company to start to generate positive performance trends,” Feinseth says. “We remain…
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