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Apr-17-2008GE's Shortfall Calls Credibility Into Question(topic overview)
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HARTFORD, Conn. - Former General Electric Co. chief executive Jack Welch said Wednesday that he would "get a gun out and shoot" his successor, Jeffrey Immelt, if he allowed GE to miss earnings targets again. "I'd be shocked beyond belief and I'd get a gun out and shoot him if he doesn't make what he promised now," Welch said on CNBC, a cable station owned by GE. "Just deliver the earnings. Tell them you're going to grow 12 percent and deliver 12 percent." The remark showed the depth of his ire at GE's announcement Friday that profit fell 6 percent in the first quarter from last year. The report came a month after Immelt promised investors that the company would hit its financial goals. "Here's the screw up: You made a promise that you'd deliver this and you missed three weeks later," Welch also said. [1] Five days after General Electric Co. disappointed investors with a surprise first-quarter earnings slump, Chief Executive Jeffrey R. Immelt defended his strategy and dismissed cries to split up and remake the conglomerate. Even as he moves to address rising investor pressure, he came under criticism Wednesday from another important constituent: GE's high-profile former CEO, Jack Welch. Mr. Immelt has a "credibility problem," Mr. Welch said on CNBC, a cable network owned by GE. Citing GE's missed earnings forecast, he said: "Here's the screw-up: You made a promise that you'd deliver this, and you missed three weeks later."[2]
April 16 (Bloomberg) -- Jack Welch, who handpicked Jeffrey Immelt to succeed him as chief executive officer at General Electric Co., said his protege "has a credibility issue'' following the company's surprise first-quarter profit shortfall. "Here's the screw-up: You made a promise that you'd deliver this and you miss three weeks later,'' Welch, 72, said today on the GE-owned CNBC network's Squawk Box program.[3] Jack Welch, former CEO of General Electric Co., was a tough boss, and retirement apparently hasn't dimmed his willingness to dish out brutally frank assessments on the performance of GE executives. During an interview on CNBC's Squawk Box program on Wednesday morning, Welch said that Jeffrey Immelt, who succeeded him as GE's CEO about seven years ago, has a " credibility issue " after the company said it would likely miss first-quarter profit targets. "He's getting his ass kicked."[4]
On April 14, GE Vice Chairman Michael Neal, who oversees the GE Commercial Finance segment, bought about $1 million in GE stock, or 31,250 shares for $32.16 each, a U.S. Securities and Exchange Commission report showed today. Immelt, 52, has already sold units with annual revenue of about $50 billion in his more than six-year tenure as CEO, such as plastics sensitive to oil prices and insurance units. In December, he put GE Money's U.S. consumer credit-card unit up for sale and has shed other pieces of that division in favor of shifting $50 billion in assets to the commercial finance segment. "I don't think they need a breakup in any meaningful fashion,'' said Robert Spremulli, who follows GE at TIAA-CREF in New York, which owns more than 74 million General Electric shares. "What they've already signaled they want to do -- that is redeploy from GE Money to GE Commercial Finance -- is a very smart move. That's adequate.'' General Electric's finance-related businesses accounted for 44 percent of net income and 53 percent of profit from continuing operations last year, according to its annual SEC filings.[3]
"I'd be shocked beyond belief and I'd get a gun and shoot him if he doesn't make what he promised now." Last week, GE, considered a bell weather indicator of the broader U.S. economy, told Wall Street that its profits tumbled 6 percent in the first quarter from last year. Just a month earlier, Immelt advised investors GE would meet its first quarter goals.[5]
Does GE's first quarter bomb mean it needs to needs to break up or at least sell off NBC U? The very question caused former GE CEO Jack Welch to reach over and theatrically slap Fox News' Neil Cavuto. "That's all crap, that's all nonsense," Welch said. On CNBC this morning, Welch said his former protege Jeff Immelt " was getting his ass kicked," but by this afternoon on Fox News, he seemed to be buying the notion that "seized-up" credit markets were explanation enough for the missed earnings. Said Welch: "The facts are the guy came on television, he apologized for missing. I don't think he's going to miss again. He made a prediction, unfortunately, three weeks prior earnings, and the world changed on him."[6] CEO Immelt, who only weeks before had been sounding bullish, apologized for the unexpected news that earnings would grow at most 5% for the year. That didn't deter observers, including former GE CEO Jack Welch, from taking him to task.[7]
John F. Welch Jr., the legendary former chief executive of General Electric, was throwing rapid-fire bouquets and brickbats Wednesday morning during his turn as guest host of CNBC's Squawk Box. Perhaps most notably, he said Jeff Immelt, his successor at G.E., had suffered a "credibility crash" after the giant conglomerate severely missed earnings expectations last week.[8] Using surprisingly blunt language, former General Electric Charmian-CEO Jack Welch unloaded on his hand-picked successor Jeff Immelt on Wednesday. Kicking off a "special edition" of CNBC's "Squawk Box," GE's legendary chief told a surprised audience: "GE lied and Jeff got his ass kicked. Jeff missed his targets and had a credibility crash.[5]
General Electric (GE) has surprised Wall Street with a fall in earnings and a profit warning just a few weeks after chairman and chief executive Jeff Immelt made an upbeat presentation to shareholders.[9] With so much distressed commercial paper floating around, many people became paranoid about risk. It was like the old game of '''hot potato,''' except nobody could pass their potatoes onto the next guy down the line. In one major presentation, I heard General Electric CEO Jeff Immelt spend a large part of his discussion defending GE'''s '''triple-A credit rating.'''[10]
General Electric reported a double digit decline in first quarter earnings, and promptly blamed the whole thing on Bear Stearns. If General Electric's CEO Jeffrey Immelt were being candid with investors, he would admit that the problem isn't with Bear Stearns, but in the performance of General Electric's financial segments.[11] You can see that General Electric's two big financial segments, Commercial Finance and GE Money, showed a twenty per cent and a nineteen per cent decline in profit in the first quarter, respectively.[11] Last Friday the chief executive of General Electric had to admit to Wall Street that profits at the world's second biggest company had missed targets and had fallen 6 per cent.[12]
The Dow Jones industrial average sank 256 points -- a 2 per cent drop. Mr Immelt might have thought that after a few tense conversations with analysts and shareholders, he could move on. He might have thought that until he switched on his television yesterday to see his formidable predecessor, Jack Welch, threaten to "get a gun out and shoot" Mr Immelt if he failed to achieve new targets. Angry was Mr Welch, who retired in 2001, at his successor's failure and the 13 per cent fall in GE stock, that he said: "I would be shocked beyond belief and I would get a gun out and shoot him if he does not make what he promised. [12] I am with you 100%. Jeff makes 19 mil a year, so he will do ok whether or not the stock price rises. It's high time the buck stopped at the top and Mr. Immelt is replaced with someone who can lead the company in the right direction, make people want to invest in GE again, and always has the shareholder's best interests at heart. He doesn't control the market, but he sure has a say in the image and value the company projects. Jack got this one very wrong and it's time for new blood.[13] After so many years of decline from the $60 stock price in 2000, it is time to give Jeff Immelt a close review with the look at having a new face in the top spot.[14]
" Jeff Immelt inherited an extremely challenged portfolio from Mr. Welch, and really had to spend the first four to five years of his tenure overcoming the shortfalls his predecessor chose to leave him,'' Sterne Agee & Leach analyst Nicholas Heymann wrote April 14. He has a "hold'' rating on the stock.[3]
"We knew the first quarter was going to be challenging, but the extraordinary disruption in the capital markets in March affected our ability to complete asset sales and resulted in higher mark-to-market losses and impairments." "Our inability to complete these asset sales and higher mark-to-market losses and impairments impacted earnings by $.05 per share versus plan," he added. GE also lowered its full-year earnings per share estimate to $2.20 to $2.30, down from the $2.42 annual estimate that Immelt had confirmed as recently as March 13 as part of a Webcast. When asked about his affirmation of GE's EPS target on a conference call with analysts, Immelt made reference to the U.S. Federal Reserve led bailout of investment bank The Bear Stearns Cos. Inc. ( BSC ).[15] Earnings from continuing operations came to $4.4 billion, or 44 cents per share, down 8 percent year-over-year. That was well below the 51 cents per share expected by analysts surveyed by Thomson Financial.[1] Net income fell 6 percent to $4.3 billion, or 43 cents per share, from $4.57 billion, or 44 cents per share, a year ago.[1]
Nearly 7 years later the shares are at $32 and barely holding on. I find it amusing that some "value" investors think GE is interesting at this level. These were the same investors that found GE interesting and a value-play at $38 last year. The problem with GE is not that it's too big: the problem is it is too complex. The largest industrial company in the world now is Exxon Mobil (NYSE: XOM ) with expected revenues this year of $550 billion. This company however is strictly in the energy sector--it's measurable and quantifiable.[14] I cited four concerns: ''' Ability to '''Go Big''', which was the theme of the 2005 annual report. In this area, I applauded his '''missionary zeal''', but didn'''t believe that he could grow organically, at a 8% compounded rate, because of the size and complexity of the company ( adding $14 billion of revenues each year and even a higher rate of earnings can'''t be achieved forever''' it is simply the '''law of BIG numbers'''). ''' '''Selling Solutions Globally''' - highlighted the complexity of selling to developing nations, like China and India, who are not willing to '''repatriate earnings and even nationalize companies''' if they are too profitable and big. ''' '''It Always Takes Longer Than You Think''', focused on how difficult it is to get large, infrastructure orders and maintain strong competitive positions. ''' '''Maintaining a Strong and Deep Bench''' focused on GE'''s willingness to invest in people and even allocate a month of the CEO'''s time to evaluating key people. When you have over 300,000 employees with a wide variety of cultures, religions and skills, this is almost impossible.[16]
"Let's put GE in perspective,'' Welch said. "At 50,000 feet, stare at a company that made 4-plus billion dollars, down 6 percent over a glitch in financial services, going to make over $20 billion this year.[3] "I'm not here defending what happened," Welch said. "This was a bad miss. This is a credibility crash. He's got to earn it back. He will earn it back. GE reported its financial services business fell 28 percent, driven by a 21 percent erosion in commercial finance due to lower real estate and other income.[1]
Mr. Welch also said the media had blown the shortfall out of all proportion. Using a mild anatomical vulgarity, he said Mr. Immelt had been more than adequately punished for failing to deliver on G.E.' s earnings guidance. Suggesting that he had no recent, inside information "I have not been in the office since the day I left," he said Mr. Welch argued that the miss was not a big deal in the scheme of things. He described the weakness in G.E.' s financial-services business as a "glitch" that was nowhere near as serious as what lenders such as Wachovia have experienced. "The plane landed," he said, "and the passengers got out safely." Mr. Welch was much more upbeat about Henry Paulson, the Treasury Secretary, and Ben Bernanke, the Fed chairman, for their handling of the Bear Stearns crisis. (He said they did a "helluva job.") Similar praise went to James Dimon, the head of JPMorgan Chase, which scooped up Bear and reported quarterly earnings early Wednesday. "He's a helluva guy," Mr. Welch said.[8] Just deliver the earnings. Tell them you're going to grow 12 percent and deliver 12 percent." I think the biggest problem for Welch is that it's become so obvious what a huge mistake he made in picking Immelt. As Welch said: "Here's the screw up: You made a promise that you'd deliver this and you missed three weeks later.[13]
The problem is simple: GE CEO Jeff Immelt (Jack's handpicked successor). Jeff made a promise to deliver something, Jack roared, and, three weeks later, he failed to deliver it.[16] Note: Consider this the de-facto sequel to Monday's GE/NAACP brand message article. Author Opening Statement and Recommendation: As a basis for the assessments and opinions in this article, the author utilized and refers to both GE CEO Immelt's Friday CNBC interview and former GE CEO Welch's guest host comments today on the same program. The author encourages readers to review the transcripts of each and make their own assessment/opinions/conclusions and welcomes any differences in opinions arrived at. In this author's opinion, last Friday's 7:30AM pre-market opening CNBC interview with GE CEO Jeff Immelt was an utter disaster.[17] Let's not make this more complicated than it is. The question the journalist's should be asking Welch is this, "If Jeff Immelt performed like this while CEO of GE Med Systems under Jack Welch, what action would he have taken"? The answer is clear, he'd have fired his ass, and rightly so.[13]
"Demand for our global Infrastructure business remained strong, but our financial services businesses were challenged by a slowing U.S. economy and difficult capital markets," GE Chairman and CEO Jeff Immelt said in a statement.[15] The disappointing performance of the industrial division is seen as an indication that problems in the financial markets are filtering through to the wider economy. According to Stephen Surpless, an analyst at Cantor Fitzgerald in London, these results confirm that the slowdown is widespread and beginning to impact capital expenditures and longer-cycle businesses. Mr Immelt said the company was performing better outside of its home market in the U.S. Our financial services businesses were challenged by a slowing U.S. economy and difficult capital markets, said Mr Immelt.[9]
The news was "shockingly bad on the financial services end,'' said Stephen Hoedt, an analyst at National City Corp. in Cleveland, which owns about 17 million shares. He questioned the company's mix of financial and industrial divisions. "This really does start to call into question the viability of this business model going forward.'' Immelt on April 11 said he will stick to his strategy for profit growth.[3]
GE on April 11 forecast profit of $2.20 to $2.30 a share for 2008, down from the prior $2.42 prediction Immelt had repeated as recently as March 13.[3] The U.S. conglomerate, which is one of the most popular shares in the U.S., said group profit would be 6% lower at $4.3 billion (''2.2 billion), with profits at GE Money down 19% and the industrial division down 16%.[9]
Investors were shocked by the lower-than-expected earnings and a profit warning that wiped $46.9 billion off GE's value and sent the overall market slumping.[1] Investors and analysts were stunned as stock fell 13 percent and wiped nearly $47 billion off the company's value.[1]
Profit from continuing operations dropped 12 percent to $4.36 billion, or 44 cents a share, from $4.93 billion. That trailed the 51-cent average estimate of 15 analysts in a Bloomberg poll.[3] Continuing earnings per share for the quarter were down 8% to 44 cents per share, missing the mean of analyst expectations at 51 cents per share.[15] Deliver the earnings. Tell them you are going to grow 12 per cent and deliver 12 per cent." As if viewers needed him to elaborate, Mr Welch added: "Here's the screw up: You made a promise that you would deliver this and you missed three weeks later.[12] Welch told CNBC (which employs me and is part of NBC Universal, a unit of GE): "Here's the screw-up. You made a promise that you'd deliver this, and you miss three weeks later.[7]
I don't know whether Welch still holds shares in GE but if he does, he can't be happy that they've fallen 20% since his hand-picked successor took over. Beyond the financial pain, Welch is suffering from a badly bruised ego -- that's because he prides himself on picking people. He clearly blew it when he selected Immelt. I saw Welch this morning sitting in the same spot I was in on GE's CNBC set last February during a stint on Squawk Box.[13] Cavuto touched on a few topics, but ended the interview asking about GE and CEO Jeffrey Immelt's recent financial problems. When Cavuto suggested GE might have to sell NBC, Welch said, "That's all crap, that's all nonsense."[18] Welch is a legend, but he couldn't have performed like Immelt has over the past six and one half years. "Neutron Jack" added all his value by 2001 and GE needed a visionary with an eye for strategic growth and selling. It reminds me of Eisner and Disney, only GE shareholders were smart enough to make the move before it cost them too much.[8] Blogs on Amazon and Goggle. Since November, 2007, I have been writing a series of blogs, entitled GEWatchers, to keep my readers and clients up to date on what Immelt and his team are doing strategically and how their actions compare to what made GE successful in the past. These can be accessed on my site: www.strategyleader.com. Immelt needs to unload NBC Universal ASAP! he loves being in the entertainment and media business but this isn't something GE should be involved in anymore. Jack Welch is another member of the Straight Talk Express ala John McCain? Welch is an ego maniac who thinks he's smarter than everyone else. Lucky for him the Media likes Welch like personalities.[16]
What does former GE (GE) boss and straight-from-the-gut management superstar Jack Welch think caused GE's first quarter bomb ? Is GE's model broken? (Common analyst conclusion.)[16] The problems provoking Welch's outburst related to GE's missing its first quarter estimates by a wide margin and giving Wall Street no advance warning. In more than 20 years at GE's helm, Welch never missed his targets by such a wide margin and rarely surprised analysts, especially in a negative context.[5] GE spokesman Gary Sheffer did not directly address Welch's comments. "We've said we hate to disappoint investors, but we're confident we have a strong set of businesses and the right strategy to execute on our revised outlook for the year," he said. GE said Friday that disruptions in its financial business late in the quarter kept it from warning Wall Street.[19]
With GE split up into several separate trading entities, a new board of directors would be established for each segment as well as a new CEO and CFO. With new people come new ideas, fresh strategies and basic underlying industry expectations. The new segments would be focused unto its own business and attract a new set of Wall Street analysts. With this comes new and hopefully original research and stock price targets.[14] "The miss and cut to guidance raises credibility concerns for GE over the near-term, given that CEO Jeff Immelt had expressed confidence," New York-based Goldman Sachs Group Inc. ( GS ) analyst Deane Dray wrote in a report, Bloomberg News reported.[15] High Expectations and Surprising Yourself During my 25 year GE tenure and my subsequent 23 years as a consultant to major corporations, I stressed two leadership tenets: 1. Set minimum expectations and always meet or even slightly exceed them. This demonstrates that you are credible and can always be counted on. 2. Never surprise your '''key stakeholders''', especially customers and investors and most of all YOURSELF. This shows that you have done your homework and are prepared for uncertainty. Last Friday, Jeff Immelt and his GE team violated both of these leaderships tenets.[16] In June, 2007, I published an article in Chief Executive magazine, entitled: '''Decision Time for Buffett and Immelt''', in which I contrasted the '''GO BIG''' simple approach of Warren Buffett with the complex approach GE'''s Immelt. In this article, I stress three actions for Immelt to consider: o Make the company less complex. o Continue to Prune the Portfolio. o Create '''tracking stocks'''- that would allow investors to invest in sectors of the company, while allowing GE to remain in control and one company.[16] To grow faster than peer companies, GE will have to go "beyond simply asset sales and share repurchase,'' Heymann said. "If anyone can get it done in this time, Mr. Immelt should be up to the task. If he can't, maybe then the company will seriously consider breaking GE into smaller entities.''[3] Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisors in Cincinnati, which owns more than six million GE shares, argues that analysts and the GE board need to look at Immelt's plans very carefully."[20]
James Hardesty of Hardesty Capital Management, which owns shares in GE, was quoted on Bloomberg TV as saying, "Immelt now has to be put in the penalty box."[20]
On item 2), add that this recent event may also further validate the idea that GE is just to darn big for any one person to oversee, grow and manage effectively. Perhaps a silver lining in all this turmoil might be a re-invigorated shareholder campaign to break the company up to release unrealized share value.[17] All in part or in whole being totally unacceptable and intolerable for any corporate CEO, and even more so coming from a CEO of a company of the size and global stature as GE. Clearly his own business unit leaders failed him, as did his Friday morning staff interview preparers. Ultimately however, Mr. Immelt failed himself by letting all these individuals in domino fashion, collectively do just that - fail him.[17] During Welch's two decades as head of the Fairfield-based company, GE expanded from a $13 billion manufacturer of appliances and light bulbs to a $480 billion conglomerate. He divested GE of billions of dollars in businesses and steered the $6.4 billion acquisition of RCA, including the NBC television network. In retirement, he gives speeches and writes books and a "Business Week" column while continuing to draw a GE pension.[1] "I have not been back in the office since then ''' but I do have a view," said Welch, who appeared as a " guest host " on the program. He said GE's business model isn't broken and the company is weathering the economic downturn because it is well diversified.[4] Welch, 72, retired as chief executive in 2001. He strongly defended GE and said investors should not clamor for major changes because the conglomerate's business model works.[19]
Jeff has a credibility issue." Should Mr Immelt have found his viewing uncomfortable, Mr Welch did add that he felt the business model (created largely by himself) worked and that he believed Mr Immelt would recover from the debacle and win back the trust of shareholders, who should not clamour for major changes.[12] Speaking on CNBC, which is owned by GE, Welch said: "Jeff has a credibility issue." Welch, appearing on "Squawk Box." also shared his thoughts on NAFTA and innovation.[21]
Jeff has a credibility issue. He's getting his ass kicked." I was on my way to the Mideast, but I called Immelt, and to his credit, he agreed to an interview and never sidestepped the tough questions.[7] "Jeff has a credibility issue. He's getting his a-- kicked. He apologized."[1]
The market has over-reacted to the profit warning by driving down the company's stock some 6%. "I do think Jeff is doing a job here and he got caught here. He'll never make that mistake again. Pow, he got it, and I think there's a massive overreaction," Welch said. "I'd be shocked beyond belief and I'd get a gun out and shoot him if he doesn't make what he promised now.'' [4] Last year also was the first time that more than half of total company revenue came from overseas, another strategy to steady growth. "I do think Jeff was doing his job and he got caught here, he'll never make that mistake again,'' Welch said. "I would be shocked beyond belief and I'd get a gun out and shoot him if he doesn't make what he promised now.''[3]
Jack has a lot more to be responsible than Jeff Immelt. Jack pushed out just about all the old experienced management team that could have helped Jeff, in favor of a new herd of 40-ish, tough young bulls before he left. I think he was trying to invigorate the company. I also think he let too much experience slip out the door.[13] Better days: General Electric's Jack Welch, left, and Jeff Immelt at a press conference announcing Immelt's appointment in 2000.[19]
It's not easy grilling your boss--especially when he's in the hot seat, as Jeff Immelt has been since Apr. 11 when GE ( GE ) reported disappointing first-quarter earnings that took the Street by surprise.[7] Apparently the stock market felt the same way, with the Dow Industrials free-falling more than 250 points on the day. Other major equity indexes fell in sync. Mr. Immelt appeared about as prepared to address the IED-like earnings bomb GE had just unleashed moments earlier, as he was aware of the earnings details themselves. In this author's opinion, as if he was "winging it" (the interview).[17] Normally, Immelt would be up there slapping the pointer against the screen and bragging about all the great products that GE makes and sells. He was busy trying to '''prove a negative,''' that GE does not hold bad paper in its money operations. Immelt believed he had to defend GE'''s stock price by dispelling fears of a rating markdown.[10] Immelt took the reigns of GE on September 7,2001 when the stock was at $40.[14] I would consider GE's current stock price and credit rating a success, considering the events since Immelt took over.[8]
Bespoke analyzed GE and the S&P; 500's performance after "the ten largest one day declines in the stock since 1980." "While both are positive, GE has typically underperformed the S&P; 500 in the following week, month, quarter, and half year."[15] Why are the big investors in GE getting excited now. The stock is selling for 65% of its price 8 years ago.[20]
If you look at the last five years, our average annual revenue growth was 13%, our average annual earnings growth was 14%; we returned close to $80 billion to investors by way of dividends and buybacks.[7] Immelt had forecast 10% growth in earnings, a forecast that has now been cut in half. Understandably, this makes investors nervous. If Immelt was that far off, is he really in control of the company? And what other surprises might erupt? Until we know the answers to those questions, Immelt can expect to face greater scrutiny and a rising tide of investor dissatisfaction.[20] Immelt's forecasting and strategy were questioned by some investors and analysts. Analysts including those from Citigroup Inc., Credit Suisse, Goldman Sachs Group Inc., Sterne Agee & Leach Inc. and Lehman Brothers Inc. said after the miss that Immelt may come under increased pressure to sell large chunks of the company.[3]
An industrial analyst is not an expert in financial services or infrastructure companies either. If GE truly wants to "bring good things to life"--for its ever patient shareholders, the board of directors should turn on the light bulb, terminate an ineffective Jeffrey Immelt and begin to spin off the parts.[14] The unexpectedly weak report shook the markets and lead to a 256.56-point decline in the Dow to close at 12,325.42 on Friday. GE's financial services division, which makes both consumer and commercial loans, was the biggest drag on earnings with a 20% decline in profit.[15] Our sales outside the U.S. in the first quarter grew by 22%, and industrial earnings were up 12%, even with the impact of the U.S. market. The essence of financial services is that sometimes things happen fast, sometimes they happen big. These were all fundamentally timing issues.[7]
General Electric Co. ( GE ) shocked the market when it announced a 6% drop in net income for the first quarter of 2007.[15] The Aussie market was doomed before trading began today with Friday's shock result by General Electric (NYSE: GE ) in New York.[11]
General Electric is a world-class jet engine maker. It's also a shameless money-lender. General Electric's commercial finance business in Australia has a much higher profile than its business in the States, which goes under a different name altogether But the company's dirty little secret is getting out: it's really a financial company masquerading as an industrial.[11] General Electric used to be company that made money by making things. Now it's a company that loses money by lending money. It's a pretty good symbol for much of what's wrong about American capitalism.[11]
Welch, who led the company from 1981 to 2001, said GE's "model isn't broken'' and that the fallout from the profit miss and reduced forecast was a "massive over-reaction.'' [3] GE Infrastructure, the biggest segment, beat GE's own revenue forecast and had a profit gain of 17 percent.[3] GE is a mish-mash of businesses, from light bulbs to jet engines to appliances to consumer loans, whereby some segments are doing well and others horribly. One segment, the infrastructure division grew its revenues by an admirable 23% this past March quarter and its profits by 17%. With this kind of growth and visibility into the next 18-24 months on revenues because of contractual commitments, this division alone could command a 25 + PE ratio.[14]
Welch was the best at marking the books each quarter. he did it at a time where accounting reg's were much looser allowing timely events top make a quarter. GE was never the same after welch because his successor was incapable of pulling similar stunts.[8] Fresh off a guest hosting gig on CNBC's Squawk Box, former GE CEO Jack Welch appeared today in an interview on FNC's Your World with Neil Cavuto.[18] Maybe now that Jack Welch is chiming in, things will start to happen to boost GE's share price.[13]
As recently as March 13, GE was telling investors it would make at least US$2.42 a share.[4] GE is now trading near its 52-week low of $31.55, and major investors are not pleased.[20]
GE stock dropped $4.70, a 12.79% decline the day of the announcement to close at $32.05.[15]
How can anybody have trust in Jeff after his lame excuses and broken promises. This man needs to find a new home without any large buyout for messing up as seems the norm for CEO's that don't do good. P&G; had this same problem a few years ago until they replaced their problem CEO with the man who stepped down and bought the stock back up.[20] To make matters worse, the admission hit the entire New York stock market as traders interpreted the numbers as a sign that the U.S. economy was in even worse trouble than first believed.[12] Many seemed to take GE's unexpected earnings report as confirmation that the U.S. economy is in recession.[15] As the second-largest domestic company based on market capitalization and the only original Dow Jones Industrial Average Index component that is still included in the index, GE has long been considered a bellwether indicator for the U.S. economy.[15]
Whatever the causes of the meltdown at GE, credibiity has been lost, and this worries people most. the fact that indeed. as late as a few weeks ago in March we were assured that all was well.not to fear, GE was just fine.free of danger from the current domestic crisis and vastly strengthened by the international side. you can't tell us that this is an error that just happened upon the company, whatever the strengths.the whole truth will come through, and the pretenders have to pay.[20] In my recent book: The Secret to GE'''s Success, I ended my 127 year strategic history of the company with concerns about Immelt'''s ability to '''meet high expectations and avoid surprises'''.[16] There should be no big bonus for Immelt this year nor a big bonus to leave the company.[20]
Whether it was potentially either not immediately promulgating key information to the investment community as it became known or simply not knowing, it appears in fact, either one or the other occurred. There is seemingly no other rational answer or alternative to the news that shocked (and bloodied) Wall Street and by his own observed body language in the interview, seemingly Mr. Immelt himself.[17]
"Mr. Immelt had been more than adequately punished for failing to deliver on G.E.'''[8] The board needs to ask, 'Are we really headed in the right direction? Yes, the Infrastructure business is going very well; let's make sure that we're not blowing it on the other side'." For his part, Immelt says he hates missing his numbers, and that he expects GE's strategy to pay off in the long run.[20]
GE's fall is tied to GE Capital's exposure to the mortgage and credit market crisis as well as to a soft ad demand at NBC and its cable operations. Welch pointed out that GE Capital's financial exposure is far "more limited" than its competitors to the current credit and loan crisis.[5] "This was a bad miss. This is a credibility crash. He's got to earn it back. He will earn it back. Mr Welch should not worry whether his message was sufficiently direct -- it was put out on CNBC, a cable station that is owned by GE.[12] Did the economy and "market disruption" cause unforeseeable problems? (Wimpy GE explanation.) Hell no!, said Jack on GE-owned network CNBC this morning.[16] All that war and still no profit? No wonder Jack's kicking Jeff in the shins.[16]
I for one thinks that Jeff needs a long vacation somewhere else other than the GE Co.[20] Some interesting thoughts George. I happen to think GE is a value but that is because of its break-up value.[14] The spin offs would realize an incredible value that frankly the current GE is not going to see for a long, long time.[14] The GE Financial segment was woeful and provided the negative surprise. This segment on its own would trade at a PE ratio of between 9-11 times.[14] Is it true?? Maybe "The Fed" told GE to issue a positive statement to ease the pain the financial markets were feeling.[16]
Carl La Fong, you may a reality testing disorder when it comes to GE. Much smarter for you to ditch GE to buy Visa which will really get rolling once the company declares a planned small dividend of 10 or 11 cents in the 3rd quarter.[8] The problem with the current GE structure is basic industrial analysts follow the company.[14]
GE should also bite the bullet and spin off several segments into separately traded companies. I wrote about this extensively last year for AOL, but now the rationale is abundantly clear. This company--a major conglomerate--cannot deliver decent shareholder returns.[14] I actually root for another quarter or two of poor performance, so the board gets it. I do the same with sports teams I like whose performance is mediocre, I root for them to do worse so house gets cleaned. You've got to break some eggs to make an omelette, and the GE board seems out to lunch on this one.[8]
Mr. Immelt is mediocre, IMHO, and that's the problem. You either want a great manager, like Mr. Welch, or a bad one, so it is obvious even to a do-nothing board to replace him.[8] Welch had some choice words for Immelt. Forbes reports that Welch said "I'd be shocked beyond belief and I'd get a gun out and shoot him if he doesn't make what he promised now.[13]
"There is no question we have just experienced a once-in-a- century flood,'' Goldman Sachs analyst Deane Dray, who downgraded the stock to "neutral,'' wrote in a note to investors April 14. [3] Through it all, the resulting stock market gyrations were a reflection of investor confusion about the future.[10]
We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time.[15]
Continuing earnings were down 12% from the same period a year prior to $4.4 billion. [15]
SOURCES
1. Welch says GE's Immelt has 'credibility issue' -- Newsday.com
2. Free Preview - WSJ.com
3. Bloomberg.com: Worldwide
4. Jack Welch says Immelt has 'credibilty issue' - FP Posted
5. Newsmax.com - Former GE Chaiman Blasts Successor
6. Welch: "Nonsense" That GE Should Sell NBC U - Silicon Alley Insider
7. Jeff Immelt on the Nasty Surprise at GE
8. Jack Welch on G.E.s Credibility Crash - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times
9. General Electric hit by US economic slowdown
10. Has greed created the credit crunch? - Money Week
11. General Electric & Lift Capital Usher in Rough Start for ASX
12. Jack Welch is gunning for his successor at General Electric after missed targets - Times Online
13. How Jeff Immelt is tarnishing Jack Welch's self-image - BloggingStocks
14. GE: Time to Spin-off the Parts - BloggingStocks
15. Weak Earnings from GE Spark Economic Concerns :: The Market Oracle :: Financial Markets Forecasting & Analysis Free Website
16. Ex-GE CEO Jack Welch Gives Current GE CEO Jeff Immelt a Performance Review - Silicon Alley Insider
17. To GE Shareholders: If It Helps, I Feel Your Pain
18. mediabistro.com: TVNewser
19. Welch: Immelt should be scared if GE misses target again - USATODAY.com
20. GE's Immelt 'in the penalty box'? - BloggingStocks
21. Jack Welch: GE CEO Immelt Has 'Credibility Issue' - Stock Market * US * News * Story - MSNBC.com
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