GE jumps as investors laud CEO’s progress in exiting ‘abyss’

Bloomberg

General Electric Co reported solid results, reaffirmed its profit forecast and avoided the kind of nasty surprises that marred earnings in recent quarters. Chief Executive Officer John Flannery expressed optimism that GE would exceed its $2 billion cost-cutting goal and said he’s exploring new ways to run the company.
“I’m excited about the path we’re on,” Flannery said on a conference call with analysts to discuss GE’s earnings. “Today is our first report card for 2018 and we see signs of progress.” The steady outlook cheered investors, who have been reeling as GE stumbles through one of the deepest slumps in its 126-year history. The latest results suggest the maker of jet engines and gas turbines is taking “baby steps out of the abyss,” said Scott Davis, an analyst at Melius Research.
“After eight months on the job, CEO Flannery seems to be getting his arms around GE,” Davis said in a note to clients. “It’s the first time that GE spoke in more detail about fixing the GE culture — a re-focus on lean manufacturing and compensating employees for the quality of a result (i.e. cash flow) and how it flows through” to overall earnings.
The Boston-based company is also in talks to sell its century-old locomotive business to rail-equipment maker Wabtec Corp., people familiar with the matter said, in an indication that Flannery is pushing ahead with asset sales. The transportation unit could be worth as much as $6.8 billion in a sale, Julian Mitchell, an analyst at Barclays Plc, wrote in a note to clients on April 17.
GE jumped 5.2 percent to $14.72 at 1:52 p.m. in New York, after surging as much as 7.6 percent for the biggest intraday advance since April 2015. It was the only stock in the Dow Jones Industrial Average to log better than a 1 percent gain. GE posted the biggest drop on the stock gauge this year, repeating its cellar-dwelling performance from 2017.
Flannery said he sees “green shoots” at GE, reprising former Federal Reserve Chairman Ben Bernanke’s phrase as the US was emerging from the severe recession in 2009. Looking to the longer term, Flannery said he summoned top leaders to the company’s leadership institute in Crotonville, New York, to discuss “a new GE operating system.”
The revamped structure will give individual business units more autonomy, he said.
Corporate operations, meanwhile, will narrow focus on “strategy, governance, capital allocation and talent.” The broad review of GE’s portfolio remains under way, he said.
The first quarter got off to a rocky start for GE and its shareholders. In January the manufacturer disclosed troubles in a portfolio of old insurance policies. About a week later, GE revealed it was under investigation by the US Securities and Exchange Commission over the insurance issue and accounting for unrelated service contracts. But the results exceeded expectations. Adjusted profit was 16 cents a share in the quarter, topping the 12-cent average of analysts’ estimates compiled by Bloomberg.