Another General Electric Co. call with analysts, another dose of bad news. This time, it’s a Securities and Exchange Commission investigation that’s adding to GE chief executive John Flannery’s headaches.
Last week, Flannery disclosed that the Boston company would take a surprise $6.2 billion write-off and set aside $15 billion over seven years to prop up its portfolio of reinsurance policies.
Flannery also reiterated that all options are on the table in terms of the massive restructuring he has underway, words that were interpreted by many to mean that he is open to breaking up the company.
On Wednesday, GE reported fourth-quarter earnings, and chief financial officer Jamie Miller mentioned on a conference call with analysts that the SEC is investigating the process that led to last week’s insurance disclosures, as well as the way GE reports revenue for its long-term service contracts.
What does this investigation mean for GE?
It’s hard to know right now. Miller seemed to downplay the probe’s effect, saying it’s in the “early stages.” And it’s worth noting that Flannery and Miller — who were both promoted to their current jobs last year — have been busy trying to make GE’s accounting methods more transparent. Those efforts apparently unearthed the insurance issues that were disclosed last week. They also led to a new format for the company’s quarterly earnings reports, one that’s much easier for analysts, reporters, and investors to understand.
These investigations can drag on for a long time. Later in the call, Miller mentioned a separate Department of Justice investigation into a long-exited mortgage business, first disclosed approximately two years ago. GE is still “early in the process” with that one, she said. The new SEC probe might not cause any financial drain to GE, but it’s just one more “overhang on top of other lingering legacy liabilities,” according to Vertical Research Partners.
What does GE’s fourth-quarter earnings report show about the company’s health?
It’s essentially more of the same: GE’s power business, its largest, continues to drag on the overall company, with revenue in the division dropping 15 percent in the quarter from a year earlier, and 2 percent for the full year. Meanwhile, aviation and health care continue to be strong points. GE is aggressively cutting costs — closing sites and eliminating some 12,000 jobs — in the power group as the demand for power plant equipment continues to soften. GE’s overall revenue dropped 1 percent to $122 billion for the year.
GE eliminated some $1.7 billion in costs last year, more than initially expected, and is planning to cut another $2 billion this year.
Some analysts say GE’s stock, which dropped about 2.7 percent Wednesday, has probably reached its nadir. But others say there are still too many uncertainties remaining with Flannery’s efforts to streamline and simplify the still-sprawling conglomerate.
Where do things stand with GE’s restructuring?
Flannery said the company has more than 20 divestitures in “active discussions” but offered little in the way of clues about what else would be sold off beyond what GE has previously announced. The company has said it would divest its lighting and transportation businesses, as well as smaller ventures such as the Boston-based Current enterprise that focuses on lighting and energy efficiency. GE is also exploring whether to divest its controlling stake in Baker Hughes, the oil-and-gas company.
But what about that possible breakup?
Flannery last week said he was open to spinning off one or more of the company’s three core businesses — power, aviation, or health care — into separately traded operations. That prompted widespread chatter that GE’s days as a conglomerate could be coming to a close.
But many analysts say a breakup appears unlikely, in part because the pieces of GE on their own are not necessarily worth more separated than they are together. GE’s industrial operations, they say, gain some benefit from shared management and computing resources.
The head of GE’s aircraft finance unit this week addressed the breakup rumors at a conference in Dublin, reportedly saying Flannery’s comments shouldn’t be interpreted as a breakup of GE but rather an examination of different ways to structure the company in the future.
What does all this mean for GE’s Boston headquarters?
GE officials say they remain committed to its $200 million project in Fort Point, although Flannery has delayed the completion of a new 12-story building by two years, until 2021. GE, which has been using leased space in Fort Point for its corporate office since moving here in 2016, has begun renovations on two older brick buildings that together represent the first phase of the headquarters project. The goal is to move into those two buildings on Necco Court next year.