Tag Archives: Expect

General Electric: Expect A Big 2019
December 27, 2018 6:00 am|Comments (0)

To call 2018 a bad year for shareholders of General Electric (GE) would be a grave understatement. Throughout the year, the company has undergone expanded investigations by the government, shuffled top management, sold off various assets, and, on multiple occasions, revise down performance expectations before ultimately eliminating them for the foreseeable future. By practically all accounts, the industrial conglomerate has been hit harder, and in almost every way possible, more than it has ever been hit before in its more than 100-year history. Now, as 2019 approaches, the big question facing shareholders is “what’s next?” While it’s possible 2019 will bring with it even more pain than 2018 has, the more likely scenario is that the firm will use the New Year to restructure its operations (out of bankruptcy) and will, if all appropriate steps are taken, prepare for a turnaround that could bring to shareholders significant value.

Expect the breakup to occur

One thing that very few people will disagree with, I think, is that a breakup of General Electric must occur. The business has become so large that it is, from a management and capital allocation perspective, inefficient. When you have so many divisions, figuring out where and how to deploy limited capital can be hard, while as separate entities, the fact of the matter is that individual management teams can focus on their core operations. By breaking up, the firm will also, for the most part, rid itself of GE Capital, which is likely where any currently undisclosed problems probably reside.

As management indicated while John Flannery was still General Electric’s top dog, I fully expect the company to divest of itself its GE Healthcare segment in some way, shape, or form. Management has indicated that this will take place through an IPO, but it’s expected that shareholders might still retain some of the business, though all of this could change over time. We already know thanks to an announcement earlier this year that the firm is likely to continue winding down its ownership in Baker Hughes, a GE Company (BHGE), by selling off its stake in the firm, but a big question here might relate to timing. Since the end of September, shares of the oilfield services firm have plummeted 34.6%, so while the company has struck a deal for a sale of some of its stock, I suspect that additional sales will only happen following a recovery in unit price.

Following the spinoff of its Transportation segment into a commanding interest in Westinghouse Air Brake Technologies Corporation (WAB), also known as Wabtec, next year, I believe management will likely begin monetizing its interests there as well. Personally, I see monetizing both Wabtec and Baker Hughes further as a sizable mistake given the future outlook I have for both energy and transportation in the US, but the cash generated from these deals will allow management to reduce debt and/or to invest further into what operations are left.

One thing I would love to see transpire is the sale or spinning off of General Electric’s Power segment. At this time, the firm intends to separate that into two different sets of operations, which may be setting the stage to sell or spin off at least one of them. I see this new decision under CEO Culp as a sign that he understands Power is General Electric’s most significant problem at the moment, and since plans to retain power occurred while Flannery was still in charge, I have modest hope that management will divest of the segment or at least part of it.

Don’t expect a distribution hike

During its third quarter earnings release earlier this year, management made a significant change to General Electric’s dividend policy. They said that, effective this month, the company would only pay out $ 0.01 per share each quarter as a distribution, down from $ 0.12 per quarter previously. This decision, though controversial, will result in the firm’s annual distribution falling from $ 4.175 billion per year to just $ 347.925 million per year. While I would have loved to see it cut all the way to zero so that management would have even more cash to put toward debt reduction and investing in core assets, the savings seen are material regardless.

Investors hoping for the distribution to recover in the near future are, I think, engaging in wishful thinking. As of the end of its latest quarter, General Electric had cash, cash equivalents, restricted cash, and marketable securities worth $ 61.69 billion, which is a lot to work with, but it also had $ 114.97 billion worth of debt (inclusive of $ 2.70 billion of non-recourse debt). Admittedly, debt was down from the $ 134.59 billion the firm had at the end of its 2016 fiscal year, but as assets come off the books, debt also must be reduced. Some of this could be taken off by spinning off various assets (for instance, the firm could probably spin in the low tens of billions of dollars off with its Healthcare segment if it so decided), but it’s likely that a lot of the work toward reducing debt will be tied to asset sales and the cash that otherwise would have been allocated toward its quarterly dividends. Until management can reduce debt, it’s unlikely we’ll see a hike, and that probably won’t occur until, at the very best, late next year.

*Taken from Moody’s

Where does debt need to be in order for management to consider raising its distribution again? The short answer is that it’s anybody’s guess, but more likely than not, it’s by whatever amount would allow the firm’s credit rating to rise back into the As. As you can see in the image above, the firm’s credit rating, as calculated by Moody’s (MCO), used to be Aaa until it fell in 2009. Since then, the rating has fallen further and, today, the firm’s long-term debt rating is Baa1. This still places it in a category known as “investment grade,” as the image below illustrates, but the drop, even though it’s not on watch for a further downgrade at this time, will weigh on financing options until the situation can be improved.

*Taken from Moody’s

A lot of cost-cutting and wheeling-and-dealing

If General Electric is going to not only survive but thrive for the long haul, there’s no doubt the firm will need to cut costs. This is especially true if the company elects to keep its Power segment, but irrespective of it, certain corporate costs will need to be slashed as the firm works to spin off its assets. Although management has, in recent times, done well to push for cost cutting, when the company actually starts to break up, we will know whether, and to what extent, this is actually true. One strategy that could work quite well could be what the firm struck with Baker Hughes. As part of its share divestiture, the two companies have entered into a series of joint agreements that will keep their operations intertwined through things like guaranteed low pricing and joint buying of key assets. I suspect this kind of wheeling-and-dealing to continue as the conglomerate sells off more of itself.

Takeaway

Based on the data provided, it’s clear that 2018 has been awful for General Electric, but investors who are expecting more pain to follow through 2019 might be on the wrong side of the bet. If 2018 was the crash for the business, 2019 will likely be the start of a true recovery for the firm, especially if management can work to restructure the entity in the way that they should. Obviously, whether the firm is successful or not, investors should expect a tremendous amount of volatility during the process, but that could present opportunities to buy and sell at attractive prices for the emotionally-detached investor.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Tech

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Gen Z is Coming to the Workforce. Here is What to Expect.
September 8, 2018 12:00 pm|Comments (0)

They are young. They are driven. They are pragmatic. They crave financial stability. They won’t put away their laundry no matter how many times I ask them.

Okay, that last sentence may just refer to the two adorable Gen Zs who happen to be my offspring. But, this next group has just started to hit the workforce (the oldest are 23), and will undoubtedly be the topic of much discussion. (We really should shut up about Millennials, because as the oldest of that group approaches 40, we should realize that many have moved into middle management, and are making the policies now.)

Less likely to be risk takers (but that’s good and bad)

Gen Z high school seniors are less likely to have tried alcohol and had sex than their previous generations of the same age. That shows responsibility. But they are also less likely to have a driver’s license, which shows caution and a dependence on others.

In theory, this is because they spend so much time on their smartphones that they don’t need to leave the house to interact with peers. That keeps teen sex from happening and alcohol consumption down. 

It also means they haven’t had as much experience dealing face to face with people and problems. When you’re texting, you can just walk away, but getting up and walking out of a meeting is rude and inappropriate. You may have to do some general coaching of how to behave in groups, especially where it’s not structured, like at a conference, when there is free time. You may also want to increase your text communications rather than face to face. It’s what they are used to.

Gen Z isn’t interested in self-employment, but they are interested in finances.

They want financial security, 82 percent of college freshmen prioritize becoming well off. Only 36 percent of their grandparents made that a priority in 1970.

They aren’t, though, terribly interested in gaining that financial security through starting their own company. This means they may be more interested in staying put and working their way up the ladder. As the oldest Gen Zs are only 23, how this plays out in the working world remains to be seen, but they don’t espouse the desire to break out on their own right now.

This goes along with their lower risk tolerance (see above). A job gives you a steady paycheck while starting your own company has lots of risks.

Gen Z is also less willing to take on college debt. They’ve seen the damage of their parents and older siblings. It’s still a high amount–47 percent of freshman took on loans in 2016, but it’s a considerable drop from 53 percent in 2009.

This means your benefits may need to change. Companies that offer loan forgiveness may have to look towards other methods to attract the best and the brightest. 

They are more diverse than previous generations.

Gen Z understands diversity of race because they’ve lived it. There are far more Hispanic Gen Z’s than there were in Gen X or Millennials. And a lot more “others.” That other isn’t defined but could be made up largely of mixed race people.

What does this mean? Well, they grew up with their classmates looking different. In addition to race, they also have grown up with very different attitudes towards homosexuality and sexuality in general. In other words, diversity is part of their life experience.

This, of course, will vary from location to location, as demographics vary wildly, but don’t be surprised when their normal is your company diversity goal.

They are still just people.

Remember, it’s important not to let the “group” overshadow the individual. You need to talk to the individual to understand what is important to that person and what that person needs, not just assume that everyone under 23 is the same.

Tech

Posted in: Cloud Computing|Tags: , , ,
The iPhone 8 rumor mill: what to expect, or not
August 3, 2017 5:45 am|Comments (0)


“You need to look no further than Apple’s iPhone to see how fast brilliantly written software presented on a beautifully designed device with a spectacular user interface will throw all the accepted notions about pricing, billing platforms and brand loyalty right out the window.” –  Edgar Bronfman, Jr. The iPhone rumor mill 2017 is the tenth anniversary of the iPhone; therefore, pundits are expecting significant changes to the existing design. The original iPhone was announced in 2007 where, on January 9, Steve Jobs announced to the world that his company was transforming the iPod, revolutionizing the mobile phone, as well…

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The iPhone 8 rumor mill: what to expect, or not
August 1, 2017 12:45 am|Comments (0)


“You need to look no further than Apple’s iPhone to see how fast brilliantly written software presented on a beautifully designed device with a spectacular user interface will throw all the accepted notions about pricing, billing platforms and brand loyalty right out the window.” –  Edgar Bronfman, Jr. The iPhone rumor mill 2017 is the tenth anniversary of the iPhone; therefore, pundits are expecting significant changes to the existing design. The original iPhone was announced in 2007 where, on January 9, Steve Jobs announced to the world that his company was transforming the iPod, revolutionizing the mobile phone, as well…

This story continues at The Next Web

Or just read more coverage about: iPhone


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The iPhone 8 rumor mill: what to expect, or not
July 21, 2017 1:20 pm|Comments (0)


“You need to look no further than Apple’s iPhone to see how fast brilliantly written software presented on a beautifully designed device with a spectacular user interface will throw all the accepted notions about pricing, billing platforms and brand loyalty right out the window.” –  Edgar Bronfman, Jr. The iPhone rumor mill 2017 is the tenth anniversary of the iPhone; therefore, pundits are expecting significant changes to the existing design. The original iPhone was announced in 2007 where, on January 9, Steve Jobs announced to the world that his company was transforming the iPod, revolutionizing the mobile phone, as well…

This story continues at The Next Web

Or just read more coverage about: iPhone


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Analysts Expect United Online to Announce $0.13 Earnings Per Share (NASDAQ:UNTD)
February 20, 2016 6:05 am|Comments (0)

The Communications segment provides Internet access services and devices, including dial-up, mobile broadband, digital subscriber line (NASDAQ:UNTD), e-mail, Internet security, Web hosting, and voice services. The Content & Media segment offers social …


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