The Decline of General Electric...What Happened?

Summary

General Electric (GE), once a pioneering company in industries like aviation, healthcare, and energy, has been struggling in recent years. After being removed from the Dow Jones in 2018 due to a significant decline in stock value, GE’s market struggles continue. The company, which has seen its value drop by over $180 billion in two years, is undergoing major changes. The current leadership, under CEO John Flannery, is focusing on downsizing to three core segments: power, aviation, and renewable energy. Despite a rich history tied to Thomas Edison and groundbreaking innovations, GE’s future remains uncertain, with many questioning if it can recover.

Takeaways

• 😀 GE was a key member of the Dow Jones Industrial Average for over a century, from 1907 until it was removed in 2018 due to poor stock performance.
• 😀 GE has experienced a significant decline in its stock price, from $32 per share two years ago to $13 per share in 2018, losing $182 billion in market value.
• 😀 While GE still holds its place as a major company, it no longer performs like the all-star it once was, despite being a historical giant.
• 😀 GE's decline was attributed to poor acquisitions, excessive diversification, and accumulating debt under former CEO Jeff Immelt, who led the company from 2001 to 2017.
• 😀 The company has had its hands in a wide range of industries over the years, including home appliances, jet engines, medical devices, and television.
• 😀 GE's power segment, the largest of its eight business segments, saw a 58% drop in revenue, contributing heavily to its overall decline in profitability.
• 😀 Despite some segments struggling, GE's renewable energy, aviation, and healthcare sectors remain crucial to their recovery plan.
• 😀 In 2017, GE appointed John Flannery as CEO, who aims to downsize the company and focus on three core areas: power, aviation, and renewable energy.
• 😀 GE plans to sell off non-core businesses, such as its oil and gas segment and light bulb division, in an attempt to streamline and regain focus.
• 😀 The company's future hinges on restructuring, improved leadership, and a shift toward fewer, more specialized segments to regain profitability.
• 😀 GE's legacy is tied to Thomas Edison, who helped establish the company in the 1800s, and the company played a significant role in pioneering numerous technologies.

Q & A

What is the Dow Jones Industrial Average and why is it significant to General Electric?

The Dow Jones Industrial Average is a stock market index that includes 30 major companies to reflect the market's performance. General Electric (GE) was one of the original companies included in the Dow, but it was removed in 2018 due to its declining performance, which no longer reflected the overall market trend.

Why was General Electric removed from the Dow Jones Industrial Average in 2018?

GE was removed from the Dow in 2018 because its stock price had been falling significantly, and it was no longer seen as a good reflection of how the market was performing, especially as other sectors and companies thrived while GE struggled.

What was the impact of the 2008-2009 recession on GE?

During the 2008-2009 recession, GE experienced a significant decline in its stock price, nearly leading to the company's collapse. The company required a bailout from Warren Buffett and government intervention to survive, primarily due to its reliance on short-term funding.

What has happened to GE's stock price in the past decade?

In the past decade, GE’s stock price has fallen sharply. In 2016, GE’s stock was valued at $32 per share, but by July 23, 2018, it had dropped to $13 per share. This decline represents a loss of $182 billion in market value over a two-year span.

How has GE's diversification strategy contributed to its decline?

GE's strategy of acquiring and selling various companies led to significant debt and reduced cash flow. The company made some questionable acquisitions, such as the purchase of Alstom Power in 2014 and Baker Hughes in 2017, which ultimately contributed to its financial difficulties.

What is the connection between General Electric and Thomas Edison?

General Electric (GE) has historical ties to Thomas Edison, as the company was formed in 1892 from a merger of Edison’s General Electric Company and another electrical company. Edison himself played a significant role in the company’s founding and early innovations.

What industries has GE been involved in throughout its history?

GE has been involved in a wide range of industries, including electricity, home appliances, jet engines, nuclear power, television and radio, medical devices, and more. Notably, GE helped develop the first American jet engines and played a key role in the creation of NBC.

How has GE's revenue been performing recently, especially in its power and renewable energy segments?

In the most recent quarter (as of mid-2018), GE's revenue increased by 3%, but profits dropped by 30%. The power segment saw a 58% decline in profit, and the renewable energy segment faced a 29% drop in revenue, highlighting struggles in some of the company’s largest sectors.

What is GE's plan to recover from its current financial struggles?

GE's recovery plan, under new CEO John Flannery, focuses on downsizing the company to focus on three core segments: power, aviation, and renewable energy. The company is selling off non-core businesses, including its light bulb division and its healthcare business, in an effort to reduce debt and improve profitability.

What are the opinions regarding the leadership of GE under former CEO Jeff Immelt?

Former CEO Jeff Immelt, who led GE from 2001 to 2017, faced criticism for making poor acquisitions and selling businesses at unfavorable prices. His tenure led to increased debt and over-diversification, which contributed to GE’s financial troubles.