Business & Tech

General Electric plans job cuts, slash in quarterly dividend

General Electric chief executive John Flannery addressed investors Monday at a meeting in New York.
Eli Kabillio/General Electric/AP
General Electric chief executive John Flannery addressed investors Monday at a meeting in New York.

NEW YORK — Boston’s biggest company is going to get considerably smaller under a turnaround plan that new General Electric Co. chief executive John Flannery spelled out Monday.

Flannery billed his changes as a reinvention aimed at putting GE back on a growth track, but he stopped short of making more dramatic changes that some on Wall Street had demanded.

Most of the storied conglomerate, whose roots extend to Thomas Edison, will remain intact, and the effect on Boston will be minimal. A small Boston-based enterprise that focuses on energy efficiency will probably be eliminated, however.

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At his first big presentation to investors since taking the helm in August, Flannery said GE will focus on three key industries: aviation, including jet engines; energy equipment and services; and health care products such as MRI machines. It will divest a number of businesses, shrink its board of directors, and cut its dividend in half, just the second reduction since the Great Depression.

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“This is the opportunity of a lifetime to reinvent an iconic company,” Flannery said.

GE’s stock fell 7.2 percent to $19.02, the biggest drop in eight years, as investors were disappointed that Flannery didn’t move more aggressively and that the restructuring would take more time to pay off than they expected. The chief executive called 2018 “a reset year.”

“John Flannery’s strategic roadmap reflects a rigorous portfolio review but suggests a tough slog ahead,” Gautam Khanna, an analyst at Cowen & Co., said in a note to clients.

Flannery, a 30-year GE veteran who had been running its health care business, became chief executive following Jeff Immelt’s sooner-than-expected departure. Immelt himself had reshaped GE over 16 years as its chief, selling off NBCUniversal, most of GE Capital, and the appliance division. He invested heavily in a software business known as GE Digital, made some big acquisitions, and moved the company’s headquarters from Connecticut to Boston to take advantage of what he liked to call the city’s innovation ecosystem.

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But investors grew restless and complained Immelt hadn’t done enough to cut costs or capitalize on big investments.

GE executives have faced particular pressure from activist investor Trian Fund Management. The company recently agreed to put Ed Garden, Trian’s chief investment officer, on the board.

“I recognize fully it’s ‘show me’ time,” Flannery said. “I can say anything I want today. Until we produce results, it’s not going to matter.”

GE’s shares have lost 40 percent of their value this year, compared with a 15 percent gain by the Standard & Poor’s 500 index. GE said it will halve its dividend payments to 48 cents a share next year, saving the company more than $4 billion a year.

GE officials also said they’re trimming 25 percent of GE’s corporate and research center jobs, as part of a much broader plan to cut at least $3 billion in expenses over two years.

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That translates into about 1,500 fewer corporate jobs worldwide. GE management said most of those cuts have already taken place, and the effect in Boston would be small.

“I think there will be adjustments around the edges,” Flannery said of the company’s Boston workforce. “We are massively committed to Boston.”

Flannery also said the company plans to divest its transportation business, which makes train engines, and its Current business, a relatively new enterprise that focuses on lighting and energy efficiency and is based in Boston. GE will also explore whether to divest its controlling stake in Baker Hughes. GE finalized its deal to invest in the oil-and-gas company in the summer.

GE’s 18-member board of directors will be reduced to 12 next year, and GE’s executive compensation will become much more reliant on stock performance than on cash. GE also pared back its earnings guidance for 2018.

GE last reduced its dividend in 2009, during the depths of the financial crisis, and only reluctantly under Immelt.

Flannery displayed a similar reluctance on Monday.

“It’s not a decision we took lightly,” Flannery said.

But he essentially said the company could no longer afford the higher payout, and that shareholders would benefit if some of that money were invested elsewhere: in acquisitions, internally to spur growth, and possibly in share buybacks.

“We’ve been paying a dividend in excess of our free cash flow for a number of years now,” Flannery said. “We just don’t think it makes sense for our company going forward.”

Flannery’s presentation represented the culmination of months of deliberations within the company to streamline the business, trim underperforming lines, and make its accounting more transparent.

The total number of jobs that will be lost as part of Flannery’s $3 billion cost-cutting effort remains unclear. The company employed 295,000 people at the end of 2016.

About 250 people work at GE’s temporary headquarters on Farnsworth Street, which opened last year. To save money, Flannery has delayed by two years the completion of a $200 million plan to build a headquarters nearby in Fort Point.

But Flannery also said on Monday that he remains committed to the project, as well as other local pledges GE has made. Those include a promise to employ 800 people in Boston by 2024, in return for $25 million in property tax breaks over 20 years.

GE employs 50 people at its Current lighting-and-energy business near South Station. The future of that group and its roughly 2,300 employees worldwide is unclear now that Flannery has targeted the 2-year-old venture for divestiture.

“It’s just not at the scale [to] command our investment and attention,” Flannery said.

He said a number of other deals will be announced over the next year or so, to reach his goal of divesting $20 billion worth of business lines.

Tech leaders in Boston remain upbeat about GE’s contributions to the community.

Tom Hopcroft, chief executive of the Mass Technology Leadership Council, said he hopes that Flannery’s moves will make GE stronger. “Reinvention on the scale of GE requires tough decisions,” he said.

Kiki Mills Johnston, managing director at the MassChallenge startup accelerator in Boston, said GE’s arrival last year helped cement Boston’s reputation as a global center of innovation. She took as a good sign that GE chose to focus on three areas — aviation, power, and health care — that are already important to Greater Boston’s economy.

“We’re optimistic that GE’s renewed focus will not only add value to their own business,” she said, “but also create value across our region.”

Material from Bloomberg News was used in this report. Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.