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Many analysts expect General Electric (GE) to exceed their profit expectations when they post their third quarter earnings report on October 20, as it has done in eight of the last nine quarters. However, there is also a high expectation that its share price will fall as it has done for the past seven quarters after earnings results are released.

Fears over a dividend cut have eased since last week – which would have led to an investor exodus and a serious drop in share value – but there still seems to be a lot of work to do for recently appointed CEO John Flannery who is overseeing restructuring and reorganising efforts.

“A dividend cut could crush the stock as retail investors flee, but maintaining it gives GE little or no excess cash to grow,” Jeffrey Sprague, an analyst at Vertical Research Partners, said last week. “GE has continued to shrink the company but it has not proportionally shrunk the dividend.”

Moody’s Investors Service credit analyst Rene Lipsch told Reuters that GE’s options would narrow next year when it no longer receives billions from asset sales at GE Capital. Adding that, long term, the dividend “depends on Flannery’s ability to increase cash flow from the businesses.”

Flannery’s appointment has been followed by the announcements that its CFO was leaving the company along with news that two vice chairs were retiring which have been taken as a bad sign by analysts.

JPMorgan are one that hasn’t been impressed by the new appointments or restructuring at GE.

 

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Analysts are eagerly awaiting General Electric's (GE) October 20 third-quarter earnings release. Eight of the last nine quarters have seen the company surpass profit projections, demonstrating its track record of doing so. However, an odd paradox has surfaced: GE's share price has dropped following the last seven earnings announcements, despite the company's strong earnings reports. Because of this, both market observers and investors are wondering if this time will be any different.

Expectations of strong fundamentals and restructuring progress under recently hired CEO John Flannery are the main drivers of optimism surrounding GE's Q3 performance. The market's response is far from certain, even though the numbers might be impressive. The main reason why sentiment is still cautious, if not pessimistic, is
The dividend policy of GE is one of the main issues that has clouded the company's stock. For months, there was conjecture that the business might reduce its dividend, which could frighten individual investors and cause the value of its shares to plummet. Although those anxieties have subsided for the time being, the fundamental problem has not been solved. "Maintaining it gives GE little or no excess cash to grow," as Vertical Research Partners' Jeffrey Sprague so eloquently stated. Stated differently, GE finds itself torn between the necessity of investing in long-term growth and the need to provide short-term rewards to shareholders.

Given GE's declining asset base, this delicate balancing act becomes even more difficult. The once-dominant conglomerate has been steadily losing assets and divisions, especially within
One of the primary problems that has tainted GE's stock is its dividend policy. For months, there was speculation that the company might cut its dividend, which would scare individual investors and drive down the value of its stock. While those fears have temporarily diminished, the underlying issue remains unresolved. According to Jeffrey Sprague of Vertical Research Partners, "Maintaining it gives GE little or no excess cash to grow." In other words, GE is caught between the need to give shareholders immediate returns and the requirement to invest in long-term growth.

This delicate balancing act is made even more challenging by GE's diminishing asset base. The once-dominant conglomerate has been gradually losing its divisions and assets.