General Electric profit down 10% at $1.8 bn in July-Sept quarter

General Electric Co on Friday reported a 10 per cent drop in third quarter profit to $1.8 billion, from $1.99 billion in the same period last year, and nearly half the level that analysts expected.

John Flannery

Amidst shrinking sales, the company managed to report earnings of 29 cents per share, on an adjusted basis, against Wall Street's prediction of 49 cents. It left its dividend unchanged.

GE also slashed its full-year profit forecast to $1.05 to $1.10 a share, from $1.60 to $1.70 previously, and said it would generate only about $7 billion in cash from operations, down from $12 billion to $14 billion it had forecast earlier.

GE shares were down as much as 6 per cent early in the day. But the stock rebounded and was up 0.4 per cent at $23.65 after new chief executive John Flannery said he will focus the company on delivering profit and cash to investors

Flannery vowed to shed more than $20 billion worth of assets and hold executives accountable for failing to deliver after what he called ''horrible'' results in the third quarter.

''This was a very challenging quarter,'' Flannery, who took over from Jeff Immlet as the company's chairman and CEO in August, said in a statement, noting that "while a majority of our businesses had solid earnings performance,'' challenges in the power sector led to "lower earnings and higher inventory. We believe that the new leadership team at power and the cost actions that we are taking will better position the company in 2018 and beyond.''

GE was hit by weak performance in GE's power and oil and gas businesses, goodwill impairment and higher-than-expected restructuring costs were the main causes of the profit decline.

Profit at the GE power business, which makes power plants and related equipment, fell 51 per cent in the quarter.

Cash flow from operating activities was $1.74 billion in the quarter, down from $2.90 billion a year earlier.

Revenue rose 14.4 per cent to $33.47 billion, boosted by the acquisition of oilfield services provider Baker Hughes.

"The company has many strong franchises, with a number of other businesses which drain investment and management resources without the prospect for a substantial reward,'' Flannery said in an earnings call with investors.

The company has identified $20 billion-plus of assets it will exit in the next one to two years.

GE's cash flow this year is expected to take a hit tied to steep restructuring costs, taxes and reduced revenue from power services. ''This performance is simply not acceptable'' Flannery said in the investors call.  But ''we expect improvement in that cash flow in 2018 ... 2018 is a reset year.''

Flannery who worked for GE for 30 years, succeeded Jeff Immlet as CEO only in August this year, while Immelt had run the company for nearly 16 years and guided the long-standing conglomerate into the digital age.

However, Immlet has not succeeded in making GE profitable and its shares had plunged more than 25 per cent during his tenure.

Since taking the helm, Flannery has overhauled the leadership of the company's various divisions and also mandated that perks such as corporate jets be cut back. 

GE pared its profit outlook for 2017 to between $1.05 and $1.10 per share, down from previous guidance of $1.60 to $1.70 per share. Analysts surveyed by S&P had predicted profit of $1.47 per share.

Flannery declined to say what is on the chopping block, details he is due to unveil on 13 November. Immelt also shook up GE's portfolio, shedding plastics, NBCUniversal and most of GE Capital. He made acquisitions to build its power and oil and gas businesses. He also poured money into 3-D printing and a digital-industrial unit. Flannery voiced support for both on Friday.

Flannery also suggested GE would do what it could to sustain its dividend, but that it had to balance paying investors with investing to build its businesses.