General Electric (NYSE: GE) was a darling of Wall Street for a couple of decades under the tutelage of legendary CEO Jack Welch. Mr. Welch retired in September 2001 turning the reins over to hand-picked successor Jeffrey Immelt. Give Immelt a break for the first 18 months as he had to guide the company through the 9-11 tragedy and of course the normal honeymoon period. Since that grace period expired in early 2003, GE has severely under performed the market and time has come for Mr. Immelt to hand the reigns over to someone else.
It is very difficult following a "legend" as Jack Welch. Many business schools model a course or two on management based on Welch's methods of letting an executive run a division creatively and freely--just return the expected numbers and all is well. Jack Welch "raised" Jeffrey Immelt in this style and picked him as the CEO to replace himself. The styles however were not transferable. Times and the global landscape have changed since Welch's departure.
Immelt has seen patient GE shareholders nervously wait for the turnaround to begin in earnest. This March quarter would have been forgivable had Immelt not spoken so positively about the quarter these past few months. The company was and acted surprised by the turn of events in the month of March and did not pre-announce its disappointment. For a company the size and sophistication of GE, surprises like this are inexcusable. The financial industry woes could not leave GE immune as it plays right in the teeth of the industry. Had Immelt been cautious with analysts and investors, forgiveness would have been quick.
The stock has seen nearly $50 billion of shareholder value disappear today. Institutional investors I have spoken with are furious. The anger comes from the "comfort language" of the past 30 days from Immelt to such a shocking surprise. They would eagerly vote to see him leave. As one said to me bluntly " this stock has been a negative performer now for seven years. He has been through both good times and bad, but even in the good times, he didn't produce. Time to hit the road!"
GE is a huge company, diversified both in product offerings and geographies, and its leader has faltered badly.
Georges Yared writes about great growth companies in Game On Investing.
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Reader Comments (Page 1 of 1)
4-11-2008 @ 5:21PM
Chris said...
GE has been pretty snooty about remaining a conglomerate; this may bring more pressure on them to break up the company which would likely unlock a lot of shareholder value.
4-11-2008 @ 6:21PM
gumbo koontz said...
General Electric boomed during decades of underpriced metals that it needs to make heavy equipment . Copper were at 70 cents a pound. Alloys are under $5 a pound. Steel were a penny a pound. Not anymore... Gasoline were at $1.50 a gallon , not anymore. Health premiums were a fraction of today's rates, not anymore. Baby boomer generation were still working not retiring, not anymore. GE is hitting the brick wall today. Free trade is booming which mean that China, India and Indonesia can make exactly the same things General Electric is making with fat profits. General Electric is not used to competition ever since. you blame Imelt, no single person be he a janitor or a CEO is solely responsible for the demise of General Electric. Only a loudmouth like me can be blamed for that but it is a long stretch...
4-11-2008 @ 6:26PM
gumbo koontz said...
There is still one major industry left that missed the whole rally recently ..It is aluminium. General Electric can sell one of its worst divisons and buy ALCOA for $100 a share. Then sit back and wait... General Electric like to be number one or two in any business. ALCOA is number one. You can fire Imelt for not buying ALCOA but not for anything else.. I dont know why Imelt is not interested in aluminium. I can only shrug my shoulder. Aluminium is not going to be stuck at $1.25 a pound forever.. it has to go up to $3 a pound before too long.. ALCOA would be earning $10 billion by then up from $3 bilion this year. General Electric, you interested?
4-11-2008 @ 8:48PM
Mr. noitall said...
Those institutional investors should be furious, at themselves, for not doing their homework as Cramer says. The one's who they are investing for should be even more furious. They are the one's who are paying these so called "professional" institutional investors big bucks to make sound decisions for them! O.k., so Immelt has done a poor job, but you "expert" institutional investors have performed just as pooly as he has over the last few years.
4-12-2008 @ 3:08PM
Raybo said...
Remember folks, 40% of GE income is financial services. This earnings shortfall is only the first small bomb- They just couldn't hold off any longer. There is more to come. And then there is the GE leverage to deal with-particularly the short-term borrowing. This will not be fun at all-the stock will see $24ish this year- Raybo
6-24-2008 @ 6:27PM
Derrick said...
It does not surprise me about GE since I am a former GE empolyee. The GE company I was at was placed under a consent decree and then spent needless amounts of money to fix the problem. Many changes were pointless, unethical, and made no business sense at all. The old adage of throw enough money at it and it will go away comes to mind. They were spending @1 million a day for over a year and didn't seem to mind. They said it was a small dent (.02% of their overall income). If they ran all their businesses that way, I can understand why they finally had a bad quarter.