As a General Electric Company (NYSE: GE) shareholder, I am not happy with the loss of 32% of my capital under the current CEO. The previous two CEOs -- Reg Jones and Jack Welch -- have changed GE under their reigns. Thanks to the fall of Communism, many countries -- such as China, Russia, India and others -- are investing over $1 trillion in their efforts to bring their people into the 21st century, according to the Courier-Journal. Thanks to its Infrastructure unit -- which provides jet engines, power plants, locomotives and other products -- GE is well positioned to take a big share of that opportunity.
Today's GE earnings report confirms that. The infrastructure unit boosted its revenues 26% to $17.5 billion in the second quarter of 2008 and its segment profit climbed 24% to $3.2 billion. Unfortunately, that outstanding performance was masked by all the other flotsam in GE's portfolio. Now, according to Reuters, GE stock -- which had been up 2% in premarket trading after meeting its 54 cents a share outlook for Q2 earnings from continuing operations -- is down 1.3% due to a forecast of flat to down third-quarter profits at GE's finance units and an uncertain outlook for capital markets.
What investors want is for GE to invest in a big, growing business opportunity where it enjoys a competitive advantage. GE is fortunate to have that in its Infrastructure business, but the other 63% of GE is masking that great performance. If GE dumped the rest of the flotsam in its portfolio, it could raise over $200 billion in capital, which it could reinvest in capturing a bigger share of that $1 trillion opportunity. Then, GE shareholders would be left with a business that is growing revenues and profits over 20% a year with $65 billion in revenues and 18% profit margins.
It would be easier for GE to attract investors to a business like that than to the stagnant conglomerate that Immelt manages now.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns GE shares.
Chasing Value: Ten stocks for 2010 -- Part 1 
Closing Bell: A six-day rally (AIG, REGN, M, MOT, PALM, RIMM)
Tesla Roadster sets a record -- travels 313 miles on a single charge
Reader Comments (Page 1 of 1)
7-11-2008 @ 10:04AM
Bruce E Warnock said...
Be sure to include disposing of CEO Immelt while you are at it. And when doing so, the Board should separate the positions of CEO and Chairman of the Board, so the new CEO will have at least a "boss" to report to.
We are GE shareholders and look at dismay back to the year 2000 and GE at $60. Immelt has long outlived his welcome.
7-11-2008 @ 10:37AM
gumbo koontz said...
Peter
You dont understand one thing... Unioins
Take GM and UAW , now look what happened? UAW never gave an inch for decades and managment had no choice but kept on stepping on own feet all along.
GE unions seem to enjoy velvet relationships with management because I had yet to hear from unions clamoriing for more wages and benefits from GE. Probably GE chose to rubber stamp whatever the unions wanted to keep things quiet. It will catch up with GE.
I call it UAW disease.
7-11-2008 @ 10:40AM
gumbo koontz said...
Peter
You dont understand one thing... Unioins
Take GM and UAW , now look what happened? UAW never gave an inch for decades and managment had no choice but kept on stepping on own feet all along.
GE unions seem to enjoy velvet relationships with management because I had yet to hear from unions clamoriing for more wages and benefits from GE. Probably GE chose to rubber stamp whatever the unions wanted to keep things quiet. It will catch up with GE.
I call it UAW disease.
7-11-2008 @ 10:43AM
gumbo koontz said...
European companies has same UAW disease but they receive government subsidies to smooth things out. Eurpoeans pay taxes to keep workers paid and managements had it easy there.
Here in America, managements are on their own and managemnets often choose to move overseas or screw shareholders all along to pay the Peter or Paul whatever.
7-11-2008 @ 10:45AM
gumbo koontz said...
In case you havent noticed,,,, dividends has not been great coming from most companies for a long while. Why? Unions want the dividend money put in the pension coffers so screw shareholders and thier 401K plans or IRAS.
7-11-2008 @ 11:57AM
Irving Green said...
GE can raise $200 billion without dropping their old standbuys which have made them standing and money for decades.
Change the benefits and pay of academics who rely on taxpayers often without children to take care of their high pay, vacations, benefits and pensions and see what a fuss there will be
7-11-2008 @ 12:56PM
Philip Block said...
Why should companies pay dividends out of profits when they are taxed twice-once at the corporate level (35%) and then at again at the stockholders level. When it is spent (put into pension funds) it is an overhead and therefor not taxed. The Fair Tax program would stop that. Dividends would not be taxed until spent by the stockholder. Then the corporate heads would not be spending so much time trying to work around a communistic tax system and spend that time on running the company.