Will General Electric Keep Trimming Its Large Industrial Portfolio?
General Electric (GE) has created a huge portfolio of companies in diverse industries over the years. Under Jeff Immelt’s leadership, the company zeroed in on its target to be a digital industrial (HON) company. As a result, a series of divestitures started in 2015, beginning with GE Capital. General Electric disposed of financial assets close to $200.0 billion. The company also sold off its appliance business, water business, and most recently, its Industrial Solutions business.
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John Flannery in his 3Q17 earnings speech said the company would have a simple and more focused portfolio. General Electric expects the sale of assets worth over $20 billion during the next one to two years.
Will GE divest the railroad business?
On October 26, 2017, the Wall Street Journal reported, “General Electric Co. is looking to exit from the railroad business, one of its oldest, as new Chief Executive John Flannery seeks to streamline the conglomerate. The Boston-based company is exploring options for the GE Transportation division, as a part of Mr. Flannery’s plans to divest more than $20 billion worth of assets in the next two years.”
Note that General Electric is one of the largest locomotive manufacturers in the world. After a strong 2014 and 2015, US rail freight growth slowed down. Plus, the cyclical nature of the transportation (IYJ) industry also makes recovery unpredictable for the locomotive manufacturers. General Electric hasn’t been doing well in its Transportation (UNP) (CSX) segment where operating income plummeted in the double digits in 2017.
GE Capital Aviation Services
On November 7, 2017, Reuters reported that GE is mulling options for its aircraft leasing business, which could include the sale of the entire aircraft leasing business. GECAS (GE Capital Aviation Services) is the second-largest lessor worldwide.
Reuters further stated, “The move comes at a time when a flood of Chinese funding is shaping the $260 billion-strong aircraft leasing industry as a significant new asset class. GECAS has a fleet of roughly 1,300 planes worth an estimated $25 billion, ranking behind only U.S.-listed AerCap Holdings NV (AER.N), which is estimated to have a $30 billion portfolio.”
General Electric’s free cash flows have fallen, yet it still paid over $8.0 billion in dividends. We’ll discuss whether GE might cut dividends in the next part of this series.