General Electric’s third-quarter report highlighted the challenges facing new CEO John Flannery, who called it “completely unacceptable” and indicated there are big changes ahead for the conglomerate.
Excluding one-off items, GE earned 29 cents per share from continuing operations in the third quarter, down 9% from the same period a year earlier and well short of analysts’ expectations of EPS of 49 cents a share.
It was GE’s biggest miss in at least 17 years, according to Bespoke Investment Group. Making matters worse, cash from core industrial businesses, a key indicator now being watched closely by investors, was $1.6 billion in the first nine months of the year, less than half the $3.4 billion reported for the equivalent period of 2016.
“The results I’m about to share with you are completely unacceptable,” CEO John Flannery said on an earnings call Friday. It was clear from the results that “we need to make some major changes with urgency,” he said.
CFO Jeff Bornstein, who is leaving the company at the end of the year, told analysts that “accountability has to start with me.” According to Reuters, he had repeatedly missed cash-flow targets as finance chief.
“We are not living up to our own standards or those of investors, and the buck stops with me,” Bornstein added.
In a process that began under Flannery’s predecessor, Jeff Immelt, GE has refocused on its industrial core and software, stripping away businesses such as its industrial solutions unit. But in the third quarter, its performance was weighed down heavily by its power business, which saw profits decline 51% percent to $611 million.
The oil and gas business swung to a loss of $36 million from a profit of $353 million a year ago.
“We are focusing heavily on the culture of the company,” Flannery said. “Things will not stay the same at GE.”
The CEO said he was “driving sweeping change” to improve performance and every aspect of the large, traditionally bureaucratic company will be reviewed. “Everything is on the table and there are no sacred cows,” he stressed.