GE slashes dividend, takes US$22B charge in 3Q

T. Rowe Price Adds Larry Culp And Alan Wilson As Independent Directors (PRNewsFoto/T. Rowe Price Group, Inc.)

General Electric slashed its quarterly dividend and announced it will restructure its power business, as the industrial conglomerate struggles with sagging profits and a spate of bad news.

The company announced a US$22 billion charge in its power division and swung to a third-quarter loss that was bigger than most industry analysts had expected.

The company on Tuesday cut its dividend to a penny, from 12 cents per share, a move that could hurt individual investors who rely on income from dividends.

But cutting the dividend will allow the company to keep about $3.9 billion in cash each year, the company said.

“It has become clear to us that we need to simplify the business structure,” said Larry Culp, GE’s new CEO, in a conference call with investors. “GE has considerable strengths. The talent here is real. The technology is special. And the global reach of the GE brand and our global relationships are truly impressive. But GE needs to change. Our team knows this.”

The power division will be split into two separate divisions including a gas-focused division that combines its gas product and services groups. The second unit will include steam, grid solutions, nuclear and power conversion.

“This is a good op for us to frankly manage this franchise better than we have,” Culp said.

GE this month ousted former CEO John Flannery after only about a year on the job, replacing him with Culp, a highly regarded executive who last led Danaher Corp., which designs, makes and sells medical and industrial equipment.

GE had been paying a dividend of 12 cents since December 2017, when it was cut from 24 cents, according to FactSet. Before that, former CEO Jeffrey Immelt cut the dividend from 31 cents to 10 cents in 2009, which was the first time the company had reduced its dividend in decades.

For the period ended Sept. 30, GE lost $22.8 million, or $2.63 per share. A year earlier the Boston company earned $1.3 million, or 16 cents per share.

Excluding the $22 billion charge tied to its power business and other items, earnings were 14 cents per share, which was 7 cents short of expectations, according to a survey by Zacks Investment Research.

Revenue declined to $29.57 billion from $30.66 billion, which was also short of expectations.

The $22 billion write-down was largely the result of GE’s acquisition of Alstom, said GE Chief Financial Officer Jamie Miller. GE bought the French company’s power and grid business in 2015 just before the gas turbine market peaked.

GE is facing a series of investigations and was removed from the Dow Jones industrial average in June. The Securities and Exchange Commission is looking into how GE took a $15 billion hit after a subsidiary, North American Life & Health, miscalculated how much it would cost to pay for the care of people who lived longer than projected.

The SEC and the Justice Department are now also investigating the $22 billion charge, and GE is co-operating with investigators, Miller said.

“This team’s been through a lot the last several years,” Culp said. “The company perhaps doesn’t enjoy the reputation in certain corners that we once did. But people here are committed to embracing that reality and changing it.”

GE also said in February that the Justice Department may take action in connection to an investigation into the company’s subprime mortgage loans business.

GE will likely miss its full-year earnings targets due to problems with the power division, Miller said.

In morning trading, GE shares added a dime to $11.26.