A Fan of GE's New Chief, Trian Exec Is 'Optimistic Good Things Will Happen'
General Electric Co. (GE) - Get Report has a number of strengths, according to activist investor Trian Partners: New CEO John Flannery is one of them, and his plan for a "dispassionate review" of whether some of the company's businesses should be sold is another.
Flannery, the 56-year-old who turned around GE's health-care business before succeeding longtime CEO Jeffrey Immelt on Aug. 1, "is part of the solution" for the manufacturer, Trian's chief investment officer, Ed Garden, said at the Delivering Alpha conference on Tuesday, Sept. 12.
"I like Flannery a lot," he added. The new CEO, who plans to outline his strategy at a Nov. 13 meeting with investors, "has said he's going to take a long look at the portfolio, dispassionately, and I'm optimistic that good things are going to happen," Garden said.
In the meantime, Trian, which has invested billions in the Boston-based conglomerate, is highly conscious of GE's lackluster stock price, which fell to a two-year low last week, Garden said
GE "has a selection of very good businesses," he noted. "Some are obviously very cyclical, and you're in the bad part of the cycle."
Indeed, weakness in the power business as well as a less-than-expected bounce in the oil, gas and locomotive markets are hindering GE's efforts to meet a $12 billion target for cash-generation from manufacturing businesses this year, Stephen Tusa, an analyst with JPMorgan Chase & Co. said in a note to clients last week.
After GE reported that it was $200 million in the red on cash from industrial operations for the first six months of the year, then-CEO Immelt assured investors cash flow would improve.
Still, executives warned that cash from manufacturing would come in "at the lower end" of GE's original forecast of $12 billion to $14 billion -- and that meeting the goal would depend in part on natural resource markets.
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The 61-year-old, who remains chairman through the end of December, has spent years streamlining the sprawling conglomerate he inherited from predecessor Jack Welch by exiting businesses such as television and appliances to focus on digital manufacturing, where he sees the potential for dramatic growth.
Whether his successor will sell more businesses remains an open question, at least until November.
"A broad breakup of the portfolio is unlikely at this stage, but we expect Flannery to articulate further scope for non-core asset disposals," Nigel Coe, an analyst with Morgan Stanley who has the equivalent of a hold rating on the shares, said in a note to clients on Tuesday, Sept. 5. "We see lighting, hydro, power conversion and potentially transportation falling into the jump-ball category."
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