General Electric reported a huge quarterly loss on Wednesday due to charges linked to its insurance business and US tax reform, but highlighted progress in turning around the slumping industrial giant. Under pressure for answers on how to pivot from a period of weakness in key power and oil and gas businesses, GE reported a fourth-quarter loss of $9.8 billion, compared with profits of $3.5 billion in the same quarter of the prior year.
Revenues in the fourth quarter were $31.4 billion, a five percent decline. GE last summer tapped John Flannery as chief executive, ushering out Jeff Immelt, whose legacy has come under fire as the company has slumped. A major weak spot has been GE's power business amid tepid demand for gas turbines as renewable energy has taken more capacity globally. GE has warned investors to expect another "tough" year for power in 2018.
Revenues and operating profits in the power segment fell steeply compared with the year-ago period. The problems in power have been offset somewhat by strength in other divisions, with aviation and healthcare both strong in the fourth quarter, the company said.
Signs of progress
Flannery announced a major restructuring initiative in November and followed up with 12,000 job cuts in the power unit in December. He has also pledged to shake up the company's board of directors. GE confirmed closely watched 2018 forecasts, including projecting adjusted earnings per share of $1.00 to $1.07 in 2018, compared with $1.00 per share expected by analysts.
"Our results this quarter demonstrate some of the early progress we are seeing from our key initiatives," Flannery said. "The team is focused on operational execution, capital allocation and deep cost reduction to position us for continued improvement in 2018."
In terms of the charges responsible for the quarterly loss, GE had previously announced it would take a $6.2 billion charge after adding more reserves in its reinsurance business following a review of actuarial assumptions. The company also announced $3.5 billion in charges associated with US tax reform, the biggest piece of which was connected to provisions on deferred taxes.
The huge charges pushed annual results into a $6.2 billion loss, compared with $9.2 billion in profits in 2016. Flannery expressed disappointment at announcing the insurance charge last week and opened the door to significant additional changes at GE, including divestitures or even a breakup.
There are "no sacred cows," he said on a conference call with analysts, adding that there "could be different structures" for GE to excel. "I would categorize it as an examination of options. And it's a kind of thing that could result in many, many different permutations," Flannery said. "The real core approach here is to make sure that these businesses can flourish in the decades ahead."
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