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FT : General Electric: target on his back

“Transformation Underway . . . but Nobody Cares.” That was how activist investor Trian Partners described General Electric’s pivot from financial services to industry in 2015, when it revealed a $2.5bn stake in the group. Not much has changed. The shares have risen only 15 per cent since. But Jeff Immelt, GE’s boss, is now officially on notice.

On Wednesday, GE said it would aim to reduce overheads in its core industrial business from $25bn to $23bn between 2016 and 2018, and hit a profit target of $17bn in 2017. To motivate management, existing cash bonus figures will rise 20 per cent if both targets are hit. If both are missed, bonuses will be cut 20 per cent. Hit one out of the two, and the status quo prevails.

While GE’s shift from financial services towards infrastructure has been celebrated, the financial results have been slow to materialise because of the fall in commodity prices and the strong dollar. Organic revenue growth for 2016 came in essentially flat, rather than at the 2-4 per cent that had been predicted at the end of 2015.

In its 2015 slides, Trian said GE shares should trade over $40 by the end of 2017, a target that seems implausible with the shares under $30. The figure that matters most now is $2.00 — the earnings per share that the Mr Immelt has pledged to reach in 2018.

GE’s new profit and cost targets delineate the path to hit that figure. Such reverse engineering to meet an arbitrary yardstick is part of the hustle of being a public company. That GE can simply find another $1bn of fat to cut as revenue growth stagnates only underscores the farce.

Mr Immelt’s tenure, now at a lengthy 15 years, has, overall, been a disappointment for shareholders. Recent reports suggest Trian has become frustrated with him. On Wednesday it voiced support for the new targets and pay plan. It cares deeply about how the next nine months proceed. The GE boss needs to show similar commitment if he wants to stick around.