GE's Path To Recovery

Once America’s most valuable company, it’s struggling under a heavy debt load

- Brooke Sutherland

General Electric Co.’s 126-year-long story is one of survival by reinvention. While many of its contemporaries have flamed out or merged away their identities, GE has remained a household name and a symbol of corporate America. But these rebirths had side effects, and those are now behind GE’s greatest crisis since the Great Recession.

On Oct. 1, Larry Culp became just the 12th chief executive to lead the industrial conglomerate that traces its roots to Thomas Edison. He arguably has the hardest job of them all. GE stock had collapsed by more than 50 percent in the year leading up to his abrupt appointment, and it’s fallen more than an additional 30 percent since; on Dec. 4, it closed at $7.28. Some GE bonds have traded at junk-like levels amid doubts over the company’s ability to manage its debt load. Culp must sell assets to raise funds, restore credibility to GE’s earnings reports, and create a mix of businesses with the potential to not only survive his turnaround efforts but also thrive over the long term. And—perhaps most important—he has to act quickly, because investors’ patience is wearing thin.

Slumping demand for gas turbines and a years long push to shrink the company have eroded GE’s industrial cash flow. Meanwhile, a surprise $15 billion reserve shortfall disclosed in January at a legacy long-term-care insurance business effectively shut off the cash spigot from the GE Capital finance arm (page 26). That’s undercut GE’s ability to bear what analysts estimate to be $100 billion in net liabilities after accounting for potential added cash needs at GE Capital, including a bigger-than expected hole in the insurance business. JP Morgan Chase & Co. analyst Steve Tusa in November cut his share price target to $6—a level last seen in the early 1990s, when Jack Welch was at the helm.