On June 19, 2018, General Electric's (GE) more than 100-year run on the Dow Jones Industrial Average (DJIA) came to an end and the last remaining original component of the Dow was dropped from the index. Just five months later on Nov. 9, 2018, shares of GE plunged 8.9% in pre-market trading, dropping below $9 per share for the first time since the 2008 financial crisis.
Despite GE’s well-publicized free fall, investors are still very much attuned to the rise and fall of one of the most iconic American companies. All eyes are on GE's newly minted CEO, H. Lawrence Culp Jr., who assumed the position in October 2018. Market analysts threw Culp a bone on Dec. 13, 2018, after JPMorgan raised its two-year rating on GE to "neutral" from "underweight." GE surged by 12.7% to $7.52 a share before the market opened. GE's stock had been steadily climbing in late 2019 and early 2020, reaching $13.16 in February 2020, before the global market downturn due to the Coronavirus.
General Electric certainly isn't out of the running yet, but there's work to be done. In this article, we take a closer look at the rise and fall of a company that has come to define American industry and corporate culture.
- GE had a 100-year run on the DJIA.
- In 2018, GE's last original component of the Dow was dropped.
- The stock price has fallen almost 50% in the last two years.
- Dividends have fallen drastically to 1 cent a share.
- The Coronavirus has impacted GE's most profitable unit, its aviation division.
- Despite its troubles, GE still operates in 130 countries and has more than 200,000 employees.
1892: GE and the Birth of American Innovation
When most Americans think “GE,” they probably think about light bulbs, televisions, and washing machines. GE was born out of the race to provide affordable light and electricity to fuel the growth of industrial America and quickly became a household name. It was incorporated in 1892 as a result of a merger between the Thomson-Houston Company and the Edison General Electric Company.
GE’s earliest products were incandescent light bulbs, an electric locomotive, early x-ray machines, and an electric stove. The company began mass-producing electric home appliances in the 1920s and was soon credited for changing the landscape of the American home.
In the years that followed, GE developed vacuum technology that enabled the invention of the microwave and radar systems. It supplied the military with equipment and executives during World War II, and in 1949, introduced the J-47, the most popular jet engine in history.
In the 1960s and 70s, GE was a pioneer in laser light technology and medical imaging.
1981: "Neutron" Jack Welch’s GE
After former chemical engineer, John F. Welch Jr., assumed the top spot at GE in 1981, GE acquired RCA and NBC and expanded into the financial services sector. A titan in the business world, Welch was known for his aggressive winnowing of unnecessary personnel. He earned the nickname of “Neutron Jack” because of his strategy of eliminating GE’s employees but leaving its physical assets intact.
By the time Welch stepped down in 2001, he had transformed GE from a $25 billion manufacturing company into a $130 billion conglomerate of “boundary-less” segments.
2008: GE in Crisis
The 2008 financial crisis hit GE hard. The company’s stock fell 42% during the year, and after Welch’s departure, it became clear that GE was overstretched and bloated. The GE Capital financial segment nearly toppled the company during the Great Recession because it did not have a competitive advantage over other financial services companies. To this day, the segment is still the subject of complaints that its balance sheet is too opaque and unwieldy.
Warren Buffett famously stepped in and invested $3 billion in 2008 to stabilize GE’s operations. And GE’s troubles didn’t end with the financial crisis. Its $9.5 billion purchase of French transportation company Alstom’s power business in 2015 was widely considered a flop.
Under Jeffrey R. Immelt, the former head of GE Medical Systems and Welch’s successor, the company was forced to strip down GE Capital and return to its roots in manufacturing. GE also divested billions of dollars in loans and real estate and jettisoned NBCUniversal, GE Plastics, GE Water, and GE Appliances.
In 2009, the company slashed its yearly dividend from $1.24 to $0.82. Dividends fell even further in 2010. Immelt served as CEO of General Electric for 16 years and stepped down earlier than expected in 2017. He later accepted the position of chairman at Athenahealth.
The amount of money that Warren Buffett famously stepped in and invested to stabilize GE’s operations.
2017-2019: GE Tries to Weather the Storm
The General Electric Company celebrated its 125th anniversary in 2017, and had been widely reputed as one of the most reliable performers in the stock market, once upon a time. GE has weathered some of its worst years in recent history but had a solid 2019.
As of February 2020, shares have fallen a whopping 59% since January 2017, when the company announced it would cut 12,000 jobs. The company’s market cap, which stood at $262 billion at the time, has fallen significantly to $107 billion.
In November 2017, GE announced plans for a broad restructuring and halved their quarterly dividend from 24 cents to 12 cents a share. In December 2018, the company cut dividends to as low as they could go, to 1 cent a share.
In that same month in 2017, GE laid off thousands of employees across all divisions in the country. The company's stock fell by 3.5% following the announcement. On October 1, 2018, GE announced that H. Lawrence Culp would replace John Flannery as Chairman and CEO of the company effective immediately.
Flannery, who had vowed to trim GE’s business segments, was replaced after almost a year of serving in the position as mounting losses continued to pressure the company. This is the latest in a series of measures that GE has undertaken in order to boost its financials.
2019: Positive News
2019 was a good year for GE and saw positive news compared to the previous years in which it was struggling. By the end of 2019, the stock was up approximately 50% for the year.
Culp has made significant improvements to the firm and has helped turn it around slightly. He's reduced debt significantly, which had been sitting at $55 billion but expected to be around half of that in 2020. He's also sold off stakes and subsidiaries that were no longer core to the GE model. GE's stake in Baker Hughes, an oil field services company, has been divested, and Culp sold off the transportation unit into Wabtec. Both moves have raised significant capital for GE.
2020: Coronavirus Impact
Despite doing an admirable job in turning GE around, Culp has been hit like everyone else from the financial disaster that the Coronavirus has caused. Markets have tumbled and almost every company has taken a beating. GE is no exception.
GE's aviation unit is specifically impacted; a unit that is crucial to the company's profitability. GE's aviation unit makes airplane engines for Boeing and Airbus, and is GE's most profitable division, generating $32.9 billion in revenue for the company in 2019. That's 34% of total revenues. With travel having been ground to a halt during the virus pandemic, airplane companies aren't ordering new planes or plane parts. GE's aviation unit is in the process of laying off 10% of its U.S. workforce as of March 2020.
The Bottom Line
Though struggling over the past few years, GE has shown signs of improvement through non-essential business sell-offs and a reduction in debt. It is a company doing business in over 130 countries with 200,000 employees worldwide. It operates in several massive industrial segments, including power, renewable energy, oil & gas, aviation, healthcare, transportation, and lighting. None of these factors should be taken lightly when looking at its prospects. It is a large institution.
The market impact from the Coronavirus, however, has thrown a wrench in the company's profitability and possibly its future. The outcome of the virus's negative impact on GE remains to be seen.