Is GE’s Immelt Headed Out the Door

By Kennedy Maize

Is Jeff Immelt, General Electric CEO, headed out the door at the enormous conglomerate he took over from “Neutron” Jack Welch in 2001? As GE continues to deliver lackluster business performance, and as Immelt continues to focus on what appear to me to be peripheral business targets, I’d suggest his days are limited. There is scuttlebutt among large money managers to the same effect.

Immelt has made big bets on alleged green technologies, particularly wind, as GE has become one of the largest wind developers in the world. As former Enron employee Rob Bradley notes in his MasterResource blog, Enron bought a floundering Zond Corp. wind business in 1997, failed to generate a profit from it, despite persuading Texas to adopt a very wind-favorable renewables standard, and sold the business to GE in 2002, under Immelt’s leadership.

Wind has been a core in GE’s loopy “ecomagination” strategy, which it appears has never shown a profit (GE’s financial disclosures are less than transparent when it comes to sussing out the results of this goofy strategy).

The latest GE wind news is that T. Boone Pickens, an oil and gas magnate who has been backing wind as a play to boost his gas assets, is rapidly backing away from wind in general and General Electric in particular. Pickens has scaled back his 687 wind turbine order from GE and will deploy the rest of his turbine buy in various sites. Pickens earlier abandoned plans for a 1 GW West Texas wind project, using GE turbines, because of the lack of a transmission grid to move the power from where it would be generated to where it would be used.

Immelt’s latest business move was to unload NBC Universal, the company’s ill-fated entertainment enterprise, to Comcast (in fairness, Welch bought NBC). Dumping NBC was an admission that GE has been pursuing false gods and abandoning its core competencies in manufacturing.

In a year end, year-to-come forecast, Immelt said GE has put “the worst behind us,” and, “We’re going to be very disciplined” in the year ahead. I don’t believe that, and I don’t think investors do either. Discipline has not characterized Immelt’s reign. GE’s market capitalization has tanked in recent years, as the stock has underperformed an underperforming market since 2007. I share the views of Welch, who said in April 2008 that he would shoot Immelt if he didn’t meet the company’s targets for 2008 and 2009. Immelt didn’t, but Jack was, fortunately, unarmed.

Under Welch, GE went from a $13 billion manufacturing company, heavy into machines such as railroad locomotives, airplane engines, and electric power turbines, into a $500 billion conglomerate, including RCA, the owner of NBC and Universal Studios. Value Expectations, an online financial advisor, commented, “Welch, once the youngest CEO in GE’s history, is highly regarded for his innovative management strategies, leadership style, and a good understanding of how to create shareholder value. From 1980 to 2001, Welch was able to grow GE’s revenues from just over $26 billion a year to $130 billion and took GE’s stock price from around $1.25 a share to nearly $50 a share. Welch streamlined GE and made it a more competitive company in the market through his dedication to identifying and improving ways of adding value to its shareholders as well as numerous successful acquisitions. During the 1990s, Welch transformed GE from a simple manufacturing company to one of the world’s largest conglomerates.”

Immelt came on board promising more of the same, and emphasizing politically correct businesses such as wind power. That all quickly turned brown and runny. The company’s stock crashed by 60%. GE’s financial arm, GE Capital, became the only element of the company that was turning a consistent profit.

The same online analysis firm, Value Expectations, slammed Immelt last year: “Jeffrey Immelt on the other hand has not been able to achieve the same success as Welch in his time as CEO so far. To be fair, Immelt took over GE at an unfavorable time, just days before the 9/11 terrorist attacks, which cost GE’s insurance arm over $600 million. Along with 9/11 Immelt also had to deal with last year’s financial crisis and the prolonged economic recession in developed nations, which dealt a huge blow to GE Capital and GE’s industrial businesses. Under Immelt the company lost two/thirds of its stock’s value, missed earnings estimates for the first time and has continued to miss, and lost its place as the largest company (by Market Cap) in the U.S. to Exxon Mobil. GE’s stock price has gone from $39/share when he took over to less than $12/share, underperforming the Dow Jones Industrial by nearly 60% (price return). Despite the above-mentioned environment Immelt had to deal with, it is not encouraging as an investor to see Economic Margins evaporate away while other businesses have adapted and been able to change their misfortunes. It is yet to be determined if Immelt can recover but it is certain he has yet to prove his ability to create shareholder value.”

Last year, GE slashed its dividend by 68 percent, the first dividend cut since the 1930s. The stock has traded at dismal levels, recently moving into the teens from single digits, a result of the general rebound in U.S. stocks as the U.S. recession has apparently receded.

Given the performance history, Jeff Immelt should be toast when GE’s board next gets together to assess his performance, unless the company has seen a major turnaround. So far, there’s not much evidence of that.

But in reality, I doubt GE will unload Immelt, regardless of the company’s performance. Most boards of directors these days at major corporations are lap dogs to company management.