|
|
|
General Electric Co.
(NYSE: GE)
3135 Easton Turnpike Fairfield 06431
Voice: 203-373-2211 Fax: 203-373-3131
www.ge.com
Revenues(nine months ending Sept. 30, 2000):
$94.872 billion
Earnings (nine months ending Sept. 30, 2000):
$9.15 billion
Market Cap (Jan. 4): $476 billion
CEO and Chairman: John Welch Jr., 64
No. employees: 340,000
|
Business New Haven
1/8/2001
By: Mitchell Young
|
The Big Kahuna Greets the Millennium
Before technology companies transformed the average investor's view of the American economy, there stood General Electric CEO Jack Welch, Forbes magazine's Manager of the Century.
A state university grad (UMass), one-time engineer and manager of GE's plastics division, Welch transformed the sleepy and some thought ailing industrial giant. In the process, Welch earned the nickname “Neutron Jack” as the company sold divisions, removed management and slashed headcount, transforming GE and along with it the core culture of corporate America.
As the 20th century drew to a close, GE and the American economy assumed superstar status. Welch was rehabilitated in the media and dubbed Manager of the Century.
How Welch achieved his success is by now industry folklore. He concentrated the conglomerate primarily on businesses that could be No. 1 or No. 2 in their markets. He emphasized quality and efficiency, turning GE's enormous cash flow into a money-making machine: GE Capital.
One major exception to the one-two rule was NBC, which Welch considered selling early in his tenure. Upon reflection, the power and prestige of a national TV network was deemed worth more than the bucks the then-ailing network itself could bring.
NBC did finally regain a competitive edge against its network rivals, albeit within the context of declining network viewership. NBC expanded successfully into cable with CNBC and MSNBC, outflanking both CBS and ABC on the set-top box.
Many believe that GE's success is rooted in the fabulously successful GE Capital. With GE Capital, GE's vast financial resources (the company currently generates over $18 billion in annual cash flow) and low-cost borrowing was used to finance everything from railway cars and consumer credit cards, to the financing and eventual takeover of Montgomery Ward (more about that later).
Today GE is a complete financial-services provider for consumers and businesses small and large, selling just about every financial service imaginable.
In 1980, the company had a negative cash flow of $58 million, but by 2000 it was generating more than $18 billion. According to the company, its ten-year stock return has exceeded 1,100 percent, towering over the 432-percent figure posted by the S&P 500. Over the most recent five years per-share earnings have grown from 60 cents to $1.06 per share, an increase of 75 percent.
On November 27, GE named Jeffrey R. Immelt, head of GE Medical Systems, to succeed Welch. Welch decided to extend his stay through the integration of the Honeywell Corp. (Welch had previously announced that he would retire this April), which GE agreed to buy on October 27.
In a $40 billion deal, GE swiped Honeywell from the clutches of Connecticut's other industrial titan, United Technologies Corp. (NYSE: UTX). Welch figures the acquisition will add ten cents per share to GE earnings but will also generate $4 billion in writeoffs eventually leading to $2.5 billion in annual savings for the combined operations. Translation: a great many layoffs and a giant restructuring - a task that perhaps Wall Street believes only “Neutron Jack” could successfully undertake.
Although the Wall Street buzz was positive on the deal, investors were voting against GE as 2000 drew to a close.
The stock ended the year with a negative six-percent return and was falling further as 2001 unfolded. Since October's high ($60), the company had lost nearly $150 billion in value before the Federal Reserve sprang its January 3 rate-reduction surprise, which helped prop up the stock to $47. The decline in market cap is real dollars - far more than investors actually had in all the failed (and thinly traded) dot.coms put together.
The post-holidays shutdown of Montgomery Ward by GE Capital after 128 years of operation is a clear portend of the kinds of tough decisions GE management is comfortable with. These include suing the federal government to overturn parts of the federal Superfund laws. That battle should concern investors about the possible PR ramifications as well as the potential cleanup costs, should the company lose. Tough-minded NBC executives told network affiliates to forego Christmas parties due to tight advertising market.
That's how GE does it - one bacon-wrapped mushroom at a time.
Betting against GE and Welch hasn't been a very successful strategy for investors since he took over the company. But with a looming recession, a passel of polluted sites, failing aircraft engines, an overstuffed acquisition and a droopy stock market, investors may take a more skeptical stance in the new century.
|
Go FirstGo PreviousGo
NextGo LastGo
to Index
|
|
