GE Rout Deepens as CEO's Attempt to Soothe Investors Falls Flat

(Bloomberg) -- General Electric Co.’s new chief executive officer tried to reassure investors but the effort failed as a deep rout worsened and Wall Street’s confidence in the beleaguered company’s future continued to collapse.

The shares tumbled as much as 10 percent Monday as Larry Culp expressed a “sense of urgency” in cutting debt and selling assets. Speaking publicly for the first time since the company spooked investors with its third-quarter earnings report Oct. 30, he also said GE’s troubled power division had yet to hit bottom.

“We’re going to try to look at everything and all of our options again with a sense of urgency,” Culp told CNBC in a rare television interview.

The CEO’s failure to stem the stock decline underscored the crisis engulfing GE as weak demand for gas turbines, heavy debt and federal accounting probes fuel one of the deepest slumps in the company’s 126-year history. The shares have dropped more than 25 percent since Culp’s surprise appointment was announced Oct. 1, extending a sell-off that has wiped out more than $200 billion in market value since the end of 2016.

GE sank 4.8 percent to $8.17 at 12:16 p.m. in New York amid a broad market decline. The shares earlier slid to as little as $7.72 for the lowest intraday price since March 2009, during the depths of the global recession. GE tumbled 51 percent this year through last week, the third-biggest drop on the S&P 500 Index.

Analyst Pessimism

JPMorgan Chase & Co. cut its 12-month price target on GE last week to $6, the lowest on Wall Street, citing rising liabilities and a worsening outlook for cash flow after the company’s earnings reports Oct. 30. Credit Suisse Group AG cut its price target to $10 from $12 in a note to clients Monday, saying there was little visibility into crucial numbers such as profit margins in the power operation and aviation division, which makes jet engines.

Culp said GE had many potential ways to cut debt. His predecessor, John Flannery, laid out plans to spin off the company’s medical-equipment business and sell its majority stake in oilfield supplier Baker Hughes. GE has other opportunities for asset sales as well, Culp said, declining to “negotiate in public” about specific deals.

“We have no higher priority right now than bringing those leverage levels down,’’ he said.

For more on a sale last week of a 37-million share block of GE, click here

GE Capital, which was hit by a $6.2 billion charge related to an old portfolio of long-term care insurance in last year’s fourth quarter, is another business dragging on the company.

“While it’s not a liquidity pressure in the short term, we know we need to tend to that and over time we’re fully committed to exploring every option we can to manage that liability and de-risk it for the GE shareholder.’’

Credit Downgrades

In Culp’s first earnings report since taking the reins, GE cut its quarterly dividend to just a penny a share from 12 cents in an effort to reduce debt. The company had about $115 billion of debt outstanding as of the end of September, down from $136 billion a year earlier. It’s targeting a net leverage ratio of 2.5 times earnings before interest, tax, depreciation and amortization or less over the next few years.

That hasn’t been enough to appease credit raters, which have expressed concern recently that GE’s beleaguered power business and deteriorating cash flows will continue to weaken the company’s financial position. Moody’s Investors Service downgraded GE two levels last month to Baa1, three steps above speculative grade. S&P Global Ratings and Fitch Ratings assign the company an equivalent BBB+, all with stable outlooks.

The power unit, which has been buffeted by weak demand and falling market share, has yet to hit bottom, Culp said. He said he lacked “conviction” to make predictions for the division’s results in the fourth quarter and next year. GE took a $22 billion charge for goodwill impairment in the third quarter.

“Has power bottomed? We’re getting close. We will know when we’re there,’’ he said. “We’ve got $94 billion of backlog for example. That should give us the potential to run this business not only better but with better visibility.’’

‘Crown Jewel’

Culp called the company’s aviation business a “crown jewel.” And while he reaffirmed that GE wasn’t planning to raise money by selling shares, he suggested that the company was open to rethinking that decision.

“We have no plans for an equity raise,” he said. “As conditions change in the future, we might come back and reconsider that. But we’re very keen to deleverage. We think we’ve got a path by way of the asset sales to do that. And that’s the plan we’re going to work.’’

--With assistance from Esha Dey and Molly Smith.

To contact the reporter on this story: Thomas Black in Dallas at tblack@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Susan Warren

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