June 26–John Flannery executed his most far-reaching move yet in nearly a year leading General Electric, pledging to spin off the GE Healthcare unit he once led; along with Baker Hughes, the oil services business in which GE had invested for a controlling stake only in 2016 under his predecessor Jeff Immelt.
Under Flannery’s new plan, GE will retain its aviation, power and renewable energy units, while continuing to shop asset portfolios of Norwalk-based GE Capital, an auction that is “progressing quite well” in the words of Jamie Miller, chief financial officer of GE, speaking Tuesday in a conference call. GE Capital represents the conglomerate’s last remaining tie to southwestern Connecticut, where GE was based in Fairfield until 2016 when Immelt moved the headquarters to Boston.
The industrial businesses on which GE will focus going forward are only slightly larger in the aggregate than those of Farmington-based United Technologies, the owner of Pratt & Whitney, Otis and UTC Aerospace Systems among other businesses that was long the largest corporate employer in Connecticut, but always a distant second to GE for global heft among the state’s crop of conglomerates. Under CEO Greg Hayes, UTC reportedly has weighed whether to split into three separate companies.
GE also plans to reduce the size of its new corporate headquarters in downtown Boston where it had moved 200 Connecticut staff in 2016, at the time having pledged to employ 800 people. GE stated it will push some of the work in Boston to the main offices of its remaining subsidiaries, expecting to save $500 million annually as a result of the divestitures and new operating model, without specifying any immediate impact on jobs.
GE shares were up 9 percent to about $13.85 Tuesday afternoon.
“The steps we are taking are really a means to an end,” Flannery said Tuesday morning. “We are fundamentally converting the company to make the business units the center of gravity. I want to focus the business units externally into the market.”
GE Healthcare entered 2018 with 52,000 employees, with Flannery having led the Chicago-based division prior to his promotion to CEO in August 2017 as Immelt’s replacement.
GE’s stock price has plummeted since Flannery’s promotion, as GE took a $6.2 billion charge against earnings to account for an Immelt-era GE Capital business that underwrote long-term care insurance, with claims soaring for policies still on GE’s books and federal regulators examining its prior reporting of liabilities.
In the first quarter, GE Capital revenue dropped to $2.1 billion, down 19 percent from a year ago, with the unit reporting a $215 million loss compared to a $87 million shortfall in the first quarter of 2017.
“With respect to insurance, we’re looking at every way possible to keep grinding down that liability,” Flannery said Tuesday. “If we see a sensible path on insurance, we’d be highly motivated to do that.”
In May, GE reached an agreement to sell its GE Transportation locomotive division to the Pennsylvania rail systems company Wabtec, and on Monday announced the spinoff to private equity investor Advent International of a unit that sells reciprocating gas engines used to generate power in industrial settings.
GE Healthcare sells an array of systems used in hospitals, from imaging and surgical tools to software to manage clinical practices. In April, GE announced the $1 billion sale of the latter business to Veritas Capital, with completion of the deal still pending. In the first quarter, GE Healthcare generated a $711 million operating profit on revenue of $4.7 billion, up 11 percent and 9 percent respectively from a year ago.
Combined, GE drew first-quarter earnings of nearly $2 billion from its aviation, power and renewable energy divisions on which it will focus going forward, with revenues down 2 percent from a year ago to $16 billion.
“Having a strong balance sheet at the company level is a top priority of having this whole transformation,” Flannery said Tuesday. “That’s how we continue to invest and grow and make sure the businesses have the resources to pursue … their strategies — that’s the key principal of the whole analysis that we did.”
Alex.Soule@scni.com; 203-842-2545; @casoulman
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