Woe Is GE: The Industrial Giant's Decline Is Not Slowing
When General Electric (NYSE: GE) reported its third-quarter numbers last week, profit and revenue missed expectations, and management cut its dividend to the bone, which did the stock price no favors. Meanwhile, it's under regulator investigation over some accounting issues, and it still has to sell off some large business units just to try to get its balance sheet healthy. And the core businesses aren't performing.
In this segment of the Motley Fool Money podcast, host Chris Hill and Fool senior analysts Ron Gross, Matt Argersinger, and Jason Moser consider the prospects for GE's recovery and the extreme weakness of its stock, and they speculate about who might want to buy this old fixer-upper.
A full transcript follows the video.
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This video was recorded on Nov. 2, 2018.
Chris Hill: The hits just keep on coming for General Electric. Third-quarter profit and revenue came in lower than expected. New CEO Larry Culp cut the quarterly dividend to $0.01 per share. Ron, how much worse is this going to get?
Ron Gross: Well, Chris, you know the old saying. It's always darkest before it goes totally black. Things are not good. Add on to that: The Justice Department and the SEC are investigating accounting charges. They're splitting their power into two divisions to cut costs. They're selling many units to try to raise $20 billion to get that balance sheet out of trouble. At last count, I want to say there was about $115 billion of debt on that balance sheet. It's very hard for them to turn this business when they have those handcuffs of that bad balance sheet. That's very important.
They will save $4 billion from cutting that dividend. That's real money. It's nothing to sneeze at. But they've got a lot of work to do here. The power business itself tumbled 33% in the latest quarter. They've got actual business problems, not just financial and balance sheet problems.
Matt Argersinger: Yeah. It's sad to see this venerable brand and company go through this now. But I look at the size of the business now, and the fact that it's now a power, aerospace business, I don't know. Berkshire Hathaway? Buffett's always looking for the next elephant. Not to say GE is the perfect fit, but the business itself, and what Berkshire Hathaway does nowadays, at least on a major part of its business, it kind of fits with GE, and the size is about right.
Hill: Matt, think back to earlier in the year, when we talked about General Electric cutting their dividend by 50%. I think you were one of the people who made the point at that time, saying, "Why don't they just cut this thing all the way and do it in one fell swoop?" And now they've cut it down to just $0.01. If it feels like we've been talking a lot about the stock falling, it's because it has been falling. And today, it's at its lowest point since the summer of 1995. Steve Broido, our man behind the glass, what else was going on in the summer of 1995?
["Kiss from A Rose" -- Seal]
Gross: Classic. Batman.
Argersinger: Bad high school memories.
Hall: That's how it's been going for GE.
Gross: Yeah, not good. There's probably a lot of money to be made on playing the bounce here if they can clean up that balance sheet and turn this business. But I think the risks outweigh those probabilities. I would stay away.
Argersinger: I just realized that Apple could buy three GEs with the cash on its balance sheet. Not to work Apple into every story.
Chris Hill has no position in any of the stocks mentioned. Jason Moser owns shares of Apple. Matthew Argersinger has no position in any of the stocks mentioned. Ron Gross owns shares of Apple and Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
