Need 6 sentence summary. Dividend cut reveals depression in fortunes at General
ID: 365599 • Letter: N
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Need 6 sentence summary.
Dividend cut reveals depression in fortunes at General Electric
James Dean, US Business Editor
November 14 2017, 12:01am, The Times
General Electric slashed its outlook for next year as John Flannery, its new boss, unveiled a wide-ranging turnaround programmeURS FLUEELER/EPA
General Electric has cut its dividend for only the second time since the Great Depression in the 1930s.
After the American conglomerate also slashed its outlook for next year as its new boss unveiled a wide-ranging turnaround programme, its shares fell by 8 per cent yesterday to $18.85.
Even at Friday’s close, GE’s shares were down by 35 per cent since the start of the year, making it the worst performer of the Dow Jones industrial average in that time.
John Flannery, chief executive, said yesterday that the company would focus on power, aviation and healthcare and would dump its other businesses, such as the lighting and locomotive divisions, that had helped it to grow into one of the world’s leading companies.
Mr Flannery took the helm in August to steady the ship after the departure of Jeff Immelt. Two months later he called the company’s financial performance “completely unacceptable”.
GE will halve its fourth-quarter dividend to 12 cents, from 24 cents in the third quarter, to make up for falling cashflow from its industrial businesses.
The company forecast that profit next year would be between $1 and $1.07 per share, some way below the $2 target that had been discussed at the start of the year.
Under Mr Flannery’s plans, GE will shrink its board to twelve members from eighteen and will bring in three new directors. “The GE of the future is going to be a more focused industrial company,” he said yesterday. “Soon we’re going to be proud of the performance.”
He said that the dividend cut was a reflection of “where we are as a company” and that he recognised “the gravity of this decision and the effect it has on many people”. He said that 2018 would be a reset year for GE, adding: “We know what we need to do.”
Mr Flannery said that it was right to align the dividend payout to cashflow generation. “We are acting with urgency to make GE simpler and stronger, to drive growth and create more value” he said.
In 2015, under Mr Immelt, GE sold off most of its financial and consumer businesses, but cashflow from its industrial operations did not fill the gap. It is expected to slump to $7 billion this year, from $11.6 billion last year. Mr Flannery said that he would streamline GE further with more than ten deals in the next two years.
Mr Immelt, who became chief executive in 2001, slashed the company’s dividend by 68 per cent in 2009 as it battled through the financial crisis, vowing that it would never be lower in his lifetime. The only cut before that was in 1938.
When he was appointed, Mr Flannery said that the dividend was safe, but he changed his mind after conducting his own review of the company.
Explanation / Answer
General Electric cut dividend for the second time since the Great Depression in the 1930s. Mr. Immelt slashed the company’s dividend by 68 per cent in 2009 as it battled through the financial crisis, John Flannery who took over Mr. Immelt said he would streamline GE by adding more than ten business deals next year to improve the dividend price (Under Mr. Immelt, GE sold off most of the consumer and financial businesses). Though Mr. Flannery said that the dividends were safe, after the review of the financial performance, he cut the dividend even further from 24 cents to 12 cents to make up the falling cashflow in the industrial businesses which are the prime focus for GE now.
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