On Monday, General Electric (GE) reset shareholder's expectations.
The multinational industrial giant announced several changes to its business following what has been a decade of weak performance from the company, culminating with the GE's most substantial earnings miss in 17 years this past third-quarter.
Former CEO Jefferey Immelt, who ran the company since 2000, was replaced this year by John Flannery, who is now tasked with executing the turnaround of one of the world's largest corporations.
Following Monday's announcements of change, Senior VP and CFO Jamie Miller spoke on Tuesday at the Goldman Sachs Industrials Conference to highlight some of the changes GE will execute in the near-future.
Franchise CompaniesMiller noted several GE franchises which are doing well, and which lead the company. These included aviation, healthcare, its renewable energy unit, and power. Regarding power specifically, Miller acknowledged the unit has struggled with operational issues but contended those problems were "fixable" and said she expects stabilization in the group by 2019.
That said, Miller also highlighted, in conjunction with cost-savings laid out on Monday, that GE would exit roughly $20 billion of assets. These, she explained, would be businesses that are "non-core" and not coming to fruition like the company initially intended. Miller said that GE would be exiting both transportation and lighting.
Another asset she touched on was Baker Hughes (BHGE) , which GE merged its oil and gas business with this year in a $32 billion deal. Miller said the company still feels good about the fundamentals of that agreement and the synergies GE has with Baker Hughes.
Capital AllocationMiller also noted future capital allocation at GE, beginning with one of Monday's biggest headlines, slashing the company's dividend in half.
"As we look out the next couple of years, we believe having a healthier level of a dividend payout ratio is the right thing for the future," Miller said.
She also argued that GE would take a much more "intense focus on a more holistic view" of capital allocation within the company.
This approach will be rooted in organic investments, and ensuring GE maintains the discipline required to return money to shareholders, while also taking a more "pragmatic" approach regarding its balance sheet.
Changing Elements of the CompanyA key point Miller discussed on Tuesday is that GE is committed to re-focusing its culture and compensation structures.
Flannery explained Monday that he intends to bring increased accountability to GE, in part by updating its pay structure. His new plan will make it so roughly 50% of the company's senior executives' compensation stems from stock rewards, versus 20% currently.
Miller also noted key changes the company's board of directors, which has been cut from 18 members to 12, will present GE with a stronger sense of focus and efficiency.
A pivotal point for GE shareholders is the company's cash-flow, Miller explained.
She noted that investors should expect 2018 to be a reset and stabilization year for GE while it takes steps to improve the free-cash-flow.
Miller reiterated that GE anticipates industrial free cash flow, which includes dividends from Baker Hughes but not deal taxes and pension commitments, of between $6 billion to $7 billion next year.
Looking out into the longer-term, Miller said she expects continued improvements and to eventually reach a normalized cash-flow.
Shares of GE were falling on over 5% on Tuesday on heavy trading volume of about 260 million shares versus the monthly average of about 85 million shares.
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