What's going on?

On Friday, General Electric (GE), America�s largest manufacturing group, reported profits significantly below Wall Street�s expectations. Ouch.

What does this mean?

The poor results were driven primarily by weak performances in GE�s power as well as oil and gas businesses (the CEO essentially blamed poor management for the power businesses woes). The company also slashed its profits forecast for the rest of the year.

This was GE�s first earnings report since the new CEO took over in August, and he called the results �unacceptable�. He announced plans to sell off parts of GE worth about $20 billion to make the company more focused, as well as cutting an additional $1 billion in spending. While details were scarce on where the cuts would be made, the CEO made it clear that �everything is on the table�. A presentation is scheduled for November 13th where GE�s new CEO will outline his plans for the future of the company.

Why should I care?

For the stock: GE is under pressure to pay out less cash to its shareholders (i.e. lower its �dividend) to free up cash.


The dividend GE pays out to shareholders is about 4% per year (compared to the current value of its stock price), which is quite high, both by historical standards and compared to its peers. Now, there is speculation that GE may have to cut this dividend in order to free up some flexibility in how it spends its money.

The bigger picture: Conglomerates are slimming down, and GE also may have to succumb to this trend.


There has a been a trend in recent years of large conglomerates slimming down their operations by selling off disparate parts of their business. Hewlett-Packard is a prime example, as is DowDuPont�s plan to split into three separate businesses. Pfizer and Unilever are other big companies that are currently considering smaller �spin-offs� of parts of their businesses. GE, with its announcement of $20 billion worth of divestments, looks like it�s next in line to slim down.