General Electric, known simply as GE, has been a significant player in shaping the modern world as we know it. However, despite its historical influence, the company is currently facing some substantial financial challenges that are difficult to ignore.
Recently, S&P Global Ratings decided to downgrade the credit ratings of both GE and GE Capital. This move comes at a crucial time, as Larry Culp steps into his new role as CEO of the company. The downgrade was mainly a result of GE’s high levels of debt and decreasing cash flows, which have been further exacerbated by ongoing issues within the power division of the company.
GE Power, in particular, has been struggling due to the increasing focus on renewable energy sources and recent mechanical problems with its gas turbines. As a result, the parent company is expected to fall short of its targets for the year 2018. These challenges have led to a significant decline in GE’s credit rating, which was once a perfect AAA rating back in 2009.
The company’s mounting debt can be attributed to a series of unfortunate business decisions, a substantial pension deficit, and ill-timed share buybacks over the years. Moody’s has also expressed concerns about GE’s high leverage, which could potentially lead to further downgrades in the future. These downgrades make it more expensive for GE to borrow money, adding to its financial woes.
Despite these challenges, there is some hope on the horizon. S&P has adjusted GE’s outlook to “stable,” anticipating improvements in leverage and cash flow in the coming years. However, the company might have to reconsider its dividend payout of $4.2 billion, as reducing or eliminating this payout could help alleviate some of the debt burden.
As Larry Culp takes the helm at GE, he faces crucial decisions regarding the company’s future direction. One option on the table is to proceed with John Flannery’s plan to break up GE by selling off various businesses to pay down debt. However, this strategy comes with its own set of risks, as it would make the company more reliant on its remaining businesses, particularly GE Power.
In conclusion, GE’s financial troubles are putting significant pressure on its new leadership to make tough decisions in the coming months. The company’s legacy and impact on the world are undeniable, but its current financial state requires immediate attention and strategic planning to ensure its survival in the long run.
