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Jeffrey Immelt’s Restructuring Efforts at General Electric

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GE’s returns to shareholders

On September 7, 2001, Jeffrey Immelt succeeded Jack Welch as General Electric’s (GE) CEO. On July 31, 2017, Immelt stepped as CEO. During Immelt’s 16-year tenure as GE’s CEO, the company delivered a return of 1.5% on an annual basis.

We can compare GE’s return with the ~7.5% annualized return by the Dow Jones Industrial Average during the same period. It is evident that GE significantly underperformed the broad industrial market indicator.

GE’s business restructuring

Immelt’s tenure was marked by the company’s acquisition of numerous assets coupled with the sell-off of substantial assets of General Electric. Even after his remarks during GE’s 2Q17 earnings report, the company couldn’t yield impressive returns for its investors. Notable sell-offs included GE Capital’s assets, the Synchrony Financial (SYF) spin-off, the Alstom acquisition, and merging its Oil & Gas division with Baker Hughes (BHGE).

General Electric expects to close the sale of GE Water in 3Q17 and its Industrial Solutions business in 4Q17. The acquisitions or divestitures should result in the accretion of earnings per share (or EPS). Looking at GE’s quarterly EPS in the last two to three years, this goal was not reached. On a long-term basis, Immelt’s tenure didn’t create the hoped-for value for GE’s investors.

In the current scenario, one could reassess Immelt’s focus on turning General Electric into a digital industrial company. This question is particularly poignant given Warren Buffett’s recent addition of a stake in Synchrony Financial through Berkshire Hathaway (BRK-A) (BRK-B), as opposed to the company shedding its holdings in GE.

US manufacturing at a glance

The PMI[1. purchasing managers’ index] reported by the Institute of Supply Management fell to 56.3% in July 2017 from 57.8% in June 2017. Plus, the new orders, production, and new export order indexes also fell in July. Although the overall direction of US manufacturing (HON) has been growing, the rate of change is slow. In such an environment, GE’s trajectory as a pure-play industrial (XLI) giant remains under a cloud.

In the final part of this series, we’ll look at GE’s 2Q17 financials.

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