General Electric. It made the legendary (and fictional) super-executive Jack Donaghy as well as the legendary (and very real) Jack Welch. It was one of the original Dow Jones Industrial Average metrics, until the Dow removed the firm from its formula in 2018. It was once one of the most profitable and iconic firms in America, a status long since eclipsed by high-technology firms like Apple (AAPL - Get Report) and Google (GOOG - Get Report) .
This company led American manufacturing and innovation through the 20th century, producing two Nobel Prize-winning researchers (in 1932 and 1973). In the 21st century, the future-forward buzz around General Electric (GE - Get Report) is that it views "R&D as an expense, not an investment."
Who and what is General Electric, exactly?
What Makes General Electric Special?
General Electric is a cultural story as much as a corporate one. The original version of GE was founded by Thomas Edison himself, who ran the firm then later worked as an inventor and researcher in its labs. This company marketed the first light bulb, the vacuum tubes for the first TVs and experimented with America's first jet engine.
Then there's the money. General Electric has been one of the largest, most profitable companies in the U.S. for well over 100 years. Its prominence kept GE a part of the Dow Jones Industrial Average until 2018, and its appliance division has made General Electric a fixture (literally and figuratively) in almost every home both American and worldwide.
There is likely something made by GE within a few footsteps of where you are sitting now.
General Electric is special, in part, because of its sheer size and influence on the American consumer. That kind of wealth and durability will make any company important. But this country has many old and rich firms. The real impact of GE is cultural.
General Electric's History in a Nutshell
The modern General Electric, as we know it now, is the story of repeated mergers.
In 1878 Thomas Edison founded the Edison Electric Light Company to sell his newly-invented light bulb. By 1890 he had founded several additional firms to market other inventions, so he founded the Edison General Electric Company to bring them all under one tent.
During this era a competing firm emerged called the Thomas-Houston Company. It occupied the same space of electric appliances and technology, and the two firms found increasing overlap in their work and patents.
In 1892 the General Electric Company formed by a merger of the Edison General Electric Company and the Thomas-Houston Company. Thomas Edison stepped down from his leadership role and returned to the company's laboratory. Eight years later the company founded its flagship industrial research laboratory in Schenectady, New York.
Mergers would become a key part of General Electric's business model. The company expanded into areas such as radio (acquiring RCA), television (acquiring NBC) and finance (acquiring numerous financial firms). In the 1980s and 90s GE focused on acquiring financial and lending services as lucrative, investment-light opportunities. Over its history the company has been an epicenter for innovations such as laser communication, the modern train engine, television and the microwave oven.
General Electric Today and Beyond
Things aren't as bright for General Electric today.
Many of GE's modern troubles are a hangover from its hard pivot into financial services. As the New York Times noted in 2015, following the Great Recession, General Electric made a move to divest itself of most of the company's financial services division. It has steadily sold off the bulk of that unit, but took heavy losses during the years while it did so.
The company's public image has taken an increasing beating as well. The past decade has seen increasing scrutiny of corporate behavior in America, with many targeting General Electric's in-house legal team as the most effective tax firm in America. This is not without some cause. Through clever structuring and aggressive offshore accounting, General Electric pays little or nothing in corporate income tax. In fact many years the government owes it money.
All of this has come at a time when manufacturing is an increasingly difficult field for American businesses. During Q2 of 2018, for example, General Electric reported a 30% decline in overall profits, with much of the loss focused on its power division. As for the appliances division that made General Electric a staple in the American household, going all the way back to that laboratory in Menlo Park… That was sold to a Chinese firm in 2016.
Today's buzz around GE could be summed up as "smaller." It has shed the appliances which built the company, liquidated most of its financial arm, sold NBC to Comcast (CMCSA - Get Report) and will sell off its healthcare division if plans stay on track.
All this has not eased a jittery investor class. Amid concerns over the company's high debt levels, investors are increasingly talking about the future of General Electric. Analysts raise questions about bankruptcy and liquidity to debt ratios.
Stockholders have not fared well. A share of GE stock had, until the 21st Century, been a solid investment vehicle. Between 1900 and 2000 the stock split multiple times and returned steady dividends, rewarding shareholders with significant returns on investment even while the stock price remained steady. Starting in the mid-1980s this price per share also began to soar, peaking at more than $58 in 2000.
This ended with the bear market of the early 2000s. While General Electric's stock recovered somewhat from those losses, it wasn't to the same degree as many of its peer firms. It took further substantial losses during the Great Recession. Today, the firm's stock price has tumbled almost continuously for two years and hovers below $10 per share. Dividends have essentially halted.
GE's Challenges in the Future
The major reason for General Electric's numerous sell-offs has been to restructure the company and focus on a core industrial manufacturing base. Recently ousted CEO John Flannery planned to focus on GE's large-scale and enterprise product divisions, such as aerospace, train and power manufacturing, as well as military contracting and (potentially) life sciences, and that plan appears to continue.
Whether that will succeed obviously remains to be seen, however, major investors remain skittish with firms such as J.P. Morgan (JPM - Get Report) continuing to rate it a "very expensive stock." The relationship between the firm's debt and stock buybacks remains worrisome, given the modern trend of stockholders enriching themselves at the expense of corporate viability, as does a continuing investigation by the Department of Justice into the remaining financial services assets.
The firm's additional decisions to scale back research and development raises further concerns about its future-forward viability, as does the company's change of leadership less than a year after appointing Flannery as CEO.
General Electric has embarked on a new era. After more than 100 years of constant growth fueled by mergers and acquisitions into almost every area of American business it has begun shrinking rapidly. The company's new vision is to focus intently on a few core areas of its business. Whether that's enough to help it recover from the recent years, or whether this will simply usher Thomas Edison's company into irrelevancy, remains to be seen.