GE's Cautious Outlook Dims Investor Confidence

General Electric Company GE stock traded lower by more than 7 percent Wednesday after CEO John Flannery said he is not expecting any profit growth from GE’s power unit in 2018.

What Happened

At the annual Electrical Products Group conference in Florida on Wednesday, Flannery reportedly said GE still has a long way to go in fixing its power and capital divisions — and that the power market will likely remain weak through at least 2020.

Moody’s cited deterioration in GE’s power business as a primary concern when it issued a negative outlook on GE’s credit. GE’s power profit declined by 53 percent in 2017.

Why It Matters

Investors are concerned that GE’s precarious financial situation could lead to another credit downgrade and/or dividend cut. Flannery didn’t do much to calm those fears Wednesday when asked if GE’s dividend was safe in 2018.

“We have to see how this plays out,” Flannery said, according to Reuters.

GE stock is down more than 30 percent since the company last cut its dividend by 50 percent back in November. GE was on pace for its worst day of trading in six months Wednesday following Flannery’s comments.

What’s Next

GE stock reacted positively to news earlier this week that the company is divesting its transportation business as part of a long-term plan to cut costs and focus on growing its core power, health care and aviation units. Analysts and investors saw the latest move as a sign GE may have turned the corner, but Wednesday’s comments indicate GE’s turnaround may still be further away than bulls had hoped.

For now, GE investors will be watching to see if Flannery’s comments about stagnant power growth will trigger more credit downgrades, or whether he is laying the foundation for another dividend cut.

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Photo by U.S. Department of Energy via Wikimedia.