New GE, Old Problems -

By Anonymous
New GE, Old Problems -

The extent of the problems in GE’s power business are still unknown. Photo: vincent kessler/Agence France-Presse/Getty Images

The past decade has brought increasing evidence of the rot inside General Electric GE 7.09% . The naming of the first outsider as chief executive and a write-down approaching $23 billion in its power unit are nothing less than the end of the old GE.

Investors rightly cheered the change. But they should also brace for more rough times ahead. GE on Monday abandoned its free-cash-flow guidance, saying it wouldn’t meet its target. That means what remains of GE’s dividend is at risk. The extent of the problems in the power business are still unknown, and GE’s long-term-care insurance operation remains troubled.

If CEOs were baseball players then John Flannery’s successor, Larry Culp, is a bona fide all-star. Between 2000 and 2014 he presided over a quintupling of revenue and market value at Danaher , DHR 0.58% leaving it a vastly different company through a bold series of transactions. Jeff Immelt, who overlapped as GE’s boss during 13 of those years, is more akin to a high draft pick who dragged his team into the basement. Mr. Flannery would be a sad footnote—a stalwart brought up from the same farm system who struggled during his brief shot in the majors.

The write-down in the power business, while dramatic, reflects GE’s potential long-term profitability. The short term is more worrisome. Free-cash-flow guidance for 2018 was abandoned on the first day of the fourth quarter with no new figure forthcoming until at least its third-quarter results later this month. This is especially alarming as GE has pulled nearly all the levers it had at its disposal to shore up its balance sheet. It halved its dividend less than a year ago and announced a slew of joint ventures and disposals. GE should eliminate its dividend to bolster its cash position.

Mr. Culp is playing the same game as Mr. Flannery and he has the same limited number of moves at his disposal. The only big one remaining would be to accelerate the disposal of the company’s 62.5% stake in oil-field-services company Baker Hughes . BHGE -2.51% A rushed transaction might bring less value and be less tax-efficient than the one Mr. Flannery seemed to be planning.

GE, long vaunted for the quality of its executives, clearly lost its way long ago. Mr. Flannery’s moves to right the ship and his relative candor with investors were welcome after his predecessor’s imperious and disastrous tenure, but he was a milquetoast insider. Mr. Culp can be more radical and isn’t tainted by a tenure at GE.

With GE’s share price near a decade low, it is tempting to bet that a new boss can at least restore some of its faded glory. It is possible. Based on what we are learning about the underlying business, though, that is going take even longer than it was with the old batting order.

Write to Spencer Jakab at [email protected]