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GE Reports Third Quarter Loss, To Split Its Power Business

GE Reports Third Quarter Loss, To Split Its Power Business
As a part of the strategy to stage a turnaround under its new boss, General Electric dropped off most of its dividend for the third quarter as it also reported loss of $22.8 billion fir the quarter because of a major write down of assets.
In the same period a year ago, the company had made profits of $1.3 billion. The company is also set to announce a further write down of $22 billion which was announced by the company at the time when GE tapped H. Lawrence Culp was appointed as the chief executive of the company earlier this month. The dividends of the company were reduced to 1 penny from 12 cents by the company.
The revenue generated by the company in the quarter also dropped by 3.6 per cent to $29.6 billion.
The depressing results of GE were a result of a dramatic drop in its power business which is being driven down by overcapacity partly because of the growth of renewable sources of energy which has brought down the demand for electricity generating turbines manufactured by the company.
A reorganization of its power business and a number of job cuts was announced by GE under the former Chief Executive John Flannery. But there was investor frustration with GE after it was dropped out of the prestigious Dow index earlier which resulted in Flannery being replaced October 1.
The company has also decided to split up v power into two units, Culp said while signalled that there would be more changes in the future for the power business which is already in the trouble. One of the divisions of the power business will be focused on gas and industrial services while the other division that would be created would concentrate on some of the other comprising steam, grid solutions, nuclear and power conversion. This would effectively eliminate the Power headquarters structure.
“We will heighten our sense of urgency and increase accountability across the organization to deliver better results,” Culp said.
“My priorities in my first 100 days are positioning our businesses to win, starting with power, and accelerating deleveraging,” he added. “We are moving with speed to improve our financial position, starting with the actions announced today.”
Shares of GE rose 1.2% to $11.22 in pre-market trading.
During the third quarter the troubled power business of GE lost $631 million, GE said.
But despite the depressing results, the forecast for the rest of the year was nit cut by GE even though the company had signalled at the beginning of the month that such a change could take place. And according to Refinitiv data, at that time, estimates for adjusted earnings for GE were cut by analysts to 88 cents a share, on average.
The one time write down clearly indicates that GE’s view of promises of profits from power business was unlikely and that the $10 billion acquisition of power assets from Alstom SA in 2015 was also not likely to bring in profits.
“They are acknowledging that it is not going to turn around in a hurry,” said Paul Healy, a professor at the Harvard Business School who focuses on corporate financial reporting.

Christopher J. Mitchell

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