The Rise and Fall of General Electric (GE)

On June 19, 2018, General Electric’s (GE) more than 100-year run on the Dow Jones Industrial Average (DJIA) came to an end: the last remaining original component of the index was gone. Not surprisingly, its stock began to plunge: Just six months later, on Dec. 24, 2018, shares were trading at $53.21, some $20 less than the worst days of the 2008-09 financial crisis.

How did this happen to what once upon a time, was widely reputed as one of the most reliable performers in the stock market—the bluest of blue-chip stocks? In this article, we take a closer look at the rise and fall of a company that has come to define American industry and corporate culture. 

1892: GE and the Birth of American Innovation

When most Americans think “GE,” they probably think about light bulbs, televisions, and washing machines. GE was born out of the race to provide affordable light and electricity to fuel the growth of industrial America and quickly became a household name. It was incorporated in 1892 as a result of a merger between the Thomson-Houston Company and the Edison General Electric Company.

GE’s earliest products were incandescent light bulbs, an electric locomotive, early x-ray machines, and an electric stove. The company began mass-producing electric home appliances in the 1920s and was soon credited for changing the functioning of the American home.

In the years that followed, GE developed vacuum technology that enabled the invention of microwave and radar systems. It supplied the military with equipment and executives during World War II, and in 1949, introduced the J-47, the most popular jet engine in history. 

In the 1960s and 70s, GE was a pioneer in laser light technology and medical imaging. 

Date Source: Yahoo! Finance

1981: “Neutron” Jack Welch’s GE

After former chemical engineer John F. Welch Jr. assumed the top spot of CEO in 1981, GE acquired RCA and NBC and expanded into the financial services sector. A titan in the business world, Welch was known for his aggressive winnowing of unnecessary personnel. He earned the nickname of “Neutron Jack” because of his strategy of eliminating GE’s employees but leaving its physical assets intact. 

By the time Welch stepped down in 2001, he had transformed GE from a $25 billion manufacturing company into a $130 billion conglomerate of “boundary-less” segments. 

2008: GE in Crisis

The 2008 financial crisis hit GE hard. The company’s stock fell 42% during the year, and after Welch’s departure, it became clear that GE was overstretched and bloated. The GE Capital financial segment nearly toppled the company during the Great Recession because it did not have a competitive advantage over other financial services companies. To this day, the segment is still the subject of complaints that its balance sheet is too opaque and unwieldy. 

Warren Buffett famously stepped in with funds to stabilize GE’s operations. But GE’s troubles didn’t end with the financial crisis. Its $9.5 billion purchase of French transportation company Alstom’s power business in 2015 was widely considered a flop. 

Under Jeffrey R. Immelt, the former head of GE Medical Systems and Welch’s successor, the company was forced to strip down GE Capital and return to its roots in manufacturing. GE also divested billions of dollars in loans and real estate and jettisoned NBCUniversal, GE Plastics, GE Water, and GE Appliances. 

In 2009, the company slashed its yearly dividend from $1.24 to $0.82. Dividends fell even further in 2010. Immelt served as CEO of General Electric for 16 years and stepped down earlier than expected in 2017. He later accepted the position of chair at Athenahealth.

2017-2019: GE Tries to Weather the Storm

The General Electric Company commemorated its 125^th anniversary in 2017. But there was little to celebrate.

Ever since January 2017, when the company announced it would cut 12,000 jobs, the stock had been stumbling—from $200-odd a share down to $100-odd, a 50% loss. The company’s market cap, which stood at $262 billion at the time, fell significantly to $107 billion.

In November 2017, GE announced plans for a broad restructuring and halved its quarterly dividend from 24 cents to 12 cents a share. In December 2018, the company cut dividends to as low as they could go, to 1 cent a share.

In that same month in 2017, GE laid off thousands of employees across all divisions in the country. The company’s stock fell by 3.5% following the announcement. On Oct. 1, 2018, GE announced that H. Lawrence Culp would replace John Flannery as chair and CEO of the company effective immediately.

Flannery, who had vowed to trim GE’s business segments, was replaced after almost a year of serving in the position as mounting losses continued to pressure the company. This was the latest in a series of measures that GE undertook in order to boost its financials. 

Market analysts threw Culp a bone on Dec. 13, 2018, after JPMorgan raised its two-year rating on GE to “neutral” from “underweight.” GE surged to $57.62 a share before the market opened.

2019: Positive News

2019 was a good year for GE and saw positive news compared to the previous years in which it was struggling.

Culp made significant improvements to the firm and helped turn it around slightly. He reduced debt, which had been sitting at $55 billion to around half of that in 2020. He also sold off stakes and subsidiaries that were no longer core to the GE model. GE’s stake in Baker Hughes, an oil field services company, was divested, and Culp sold off the transportation unit into Wabtec. Both moves raised significant capital for GE.

By the end of 2019, the stock was up approximately 50% for the year.

2020: COVID-19 Impact

Despite doing an admirable job in turning GE around, Culp has been hit like everyone else from the financial disaster that the COVID-19 pandemic has caused.

GE’s stock had been steadily climbing in late 2019 and early 2020, reaching $105.28 on Feb. 12, 2020, before the global market downturn due to the COVID-19 pandemic.

By May 15, 2020, it had sunk to $43.92, its lowest price in two decades.

GE’s aviation unit was specifically impacted; a unit that is crucial to the company’s profitability. GE’s aviation unit makes airplane engines for Boeing and Airbus, and is GE’s most profitable division, generating $32.9 billion in revenue for the company in 2019. That’s 34% of total revenues. With travel having been ground to a halt during the pandemic, airplane companies weren’t ordering new planes or plane parts. GE’s aviation unit began laying off 10% of its U.S. workforce as of March 2020.

Improvement in 2021

Things began to look better for GE in 2021, though. Profit margins began recovering, and free cash flow became positive again. The stock began steadily rising in the second half of the year, closing in the three digits for the first time since 2018, to as much as $112 per share. Acquiring ultrasound maker BK Medical for the already-strong healthcare division—at $1.45 billion, the company’s largest purchase in years—in September sparked an especially favorable reaction from investors; shares shot up nearly 5%.

As of 2021, GE consists of four segments: aviation, healthcare, power, and renewable energy. “Transforming,” its website says, into a “focused, simpler, stronger high-tech industrial.”

The Bottom Line

Despite GE’s well-publicized free fall, investors are still very much attuned to one of the most iconic of American companies.

Though struggling over the past few years, GE has shown signs of improvement through non-essential business sell-offs and a reduction in debt. It is a company doing business in over 130 countries with nearly 175,000 employees worldwide. It operates in several massive industrial segments, including power, renewable energy, oil & gas, aviation, healthcare, transportation, and lighting.

None of these factors should be taken lightly when looking at its prospects. On the downside, the market impact from the COVID-19 has thrown a wrench in the company’s profitability and possibly its future. General Electric certainly isn’t out of the running yet, but there’s work to be done if it’s ever to regain its footing as the quintessential U.S. corporation—and its place in the DJIA.

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