GE GE Aerospace

By Thomas Gryta 

General Electric Co. boss John Flannery warned investors Wednesday that the company's big power business faces years of pressure and reminded them that major changes at the conglomerate will take some time.

"This is not going to be a quick fix," the CEO said in a presentation at the Electric Products Group conference. He also declined to commit to the current dividend for 2019, implying that it would be adjusted with major portfolio moves.

"It is ultimately a function of the free cash flow of the company... and the things we do with the portfolio," he said. GE cut its dividend in half in November, only the second reduction of the payout since the Great Depression.

The comments disappointed Wall Street, which pushed GE's shares down 7.3% in Wednesday trading to $14.18.

Investors have waited since last summer for answers on the company's direction, including a possible breakup. Mr. Flannery didn't commit Wednesday to a timeline for sharing his ultimate road map. People familiar with the matter said GE plans to unveil its strategy in late June.

Mr. Flannery made his first major portfolio move this week in agreeing to spin off GE's transportation business but didn't provide details on future moves. Much of his message on Wednesday was a reiteration of prior declarations to simplify, reduce the financial services business and focus on cash generation.

The CEO highlighted that GE expects flat profits in its power business this year and weak demand for turbines in 2019 and 2020. The business is GE's biggest in terms of revenue and has been a drag on results.

Mr. Flannery's first appearance at the EPG conference comes a year after former boss Jeff Immelt took the stage, just three weeks prior to his retirement announcement. Mr. Immelt backed a 2018 earnings projection of $2 a share that many thought wasn't realistic and expressed frustration with the stock price. The 2018 profit target is now about half what it was, and GE's share price is now down about 50% from a year ago.

"We are running things in a very, very different way going forward," Mr. Flannery, who took over in August, said Wednesday.

He gave some insight into more disciplined financial management, an area that has gotten GE in trouble in the past. He wants to shrink the overall size of GE Capital, the financial services business, and is working on reducing the risk around long-term-care insurance obligations that recently led to a $15 billion shortfall in reserves.

"We are thinking very much of building a cushion here," he said. "Running the company with higher levels of cash, reducing the reliance on short-term funding, making contributions to the pension fund."

Concerning the culture of the company, Mr. Flannery talked of moving decision-making from headquarters to the divisions. He said the shifts aren't related to recent events but he formed ideas for change in the past 10 years that "perhaps a different model would serve us better."

He also countered criticism that restructuring GE is taking too long. He referred to the complexity of the transportation deal and needing to take time to make sure it works best for the company and investors. He scoffed at suggestions that he simply sell the operations for cash months ago.

"If we listened to those demons, I think we would have done something that you guys regretted," he said. "Being deliberate and then moving when things make sense -- as opposed to moving just because somebody wants to -- is just my style."

Write to Thomas Gryta at thomas.gryta@wsj.com

(END) Dow Jones Newswires

May 23, 2018 20:23 ET (00:23 GMT)

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