John Flannery, the new chief executive of General Electric from August, will set out his plans for the company in November, after a series of meetings with customers, staff and investors, and will take “a hard look at our corporate spending”.
Mr Flannery briefed analysts on the timeline after the results for the second quarter highlighted the challenge he faces: earnings were slightly higher than expected but cash flow and profit margins for GE’s industrial businesses were disappointing, and the company warned that earnings for the full year were “trending to the bottom end of the range.”
GE had previously projected earnings of $1.60-$1.70 per share. Shares in the group fell about 3 per cent at $25.83 by midday in New York.
Jeff Immelt will hand over after 16 years as chief executive, during which time GE shares dropped by 35 per cent while the S&P 500 index rose 118 per cent.
Mr Flannery told analysts on a call that he planned to look at the group’s central costs to make sure they contributed to earnings, and was going through “a zero-base budget exercise on all of our functions.”
He added that he had already met about 100 analysts and fund managers, planned to meet many more, and had already heard “plenty of suggestions on ways we can improve.”
Trian, the activist investor, revealed a stake in GE in October 2015 and has been pushing management to improve performance.
Adjusted earnings per share for the second quarter, excluding pension costs, were down 45 per cent on the previous period a year ago to 28c, affected by the absence of the $3.1bn pre-tax gain from the sale of the appliances business which was reported last year. Revenues were down 12 per cent at $29.6bn.
GE has in the past suggested that earnings per share could reach $2 next year, but Jeff Bornstein the chief financial officer, said that, like everything else, that target was under review by Mr Flannery.
“John is looking at everything: the portfolio, our operating rhythms, the GE Store [and] where we invest,” Mr Bornstein said.
The “GE Store” is the company’s name for its central functions, including research and development, global administration, and the digital services that Mr Immelt sees as critical for the group’s future and has invested in heavily.
Mr Flannery told the analysts he would be “making sure 100 per cent of our GE store outlays are accretive to the overall results of the company.”
Cash from the industrial manufacturing and services operations, again excluding pensions costs, was $1.47bn in the second quarter, up from just $65m in the equivalent period of 2016. Mr Immelt said he expected cash flow to continue to improve throughout the year.
The division providing services and equipment to the oil and gas industry, which has just been merged into Baker Hughes, was the most significant drag on earnings with a 52 per cent drop in its profits to $155m. GE warned that its performance in the second half of the year was likely to be worse than previously expected, although better than in the first half.
The power equipment and services division was also weak, with profits down 10 per cent at $1.03bn. There were better performances from the renewable energy arm, including wind turbines, where profits were up 25 per cent at $160m, as well as the aviation business, where profits rose 11 per cent to $1.49bn.