More Trouble for GE

General Electric Co.’s troubles came into sharper relief on Tuesday—and the need to salvage the conglomerate took on new urgency—after it revealed federal prosecutors had opened a criminal accounting probe and GE slashed its dividend to a token amount.

By cutting its dividend for the second time in a year, the once-mighty manufacturer can hold on to the little cash it is currently generating. That will buy some breathing room while Larry Culp, its first outsider chief executive officer, restructures the company and finishes breaking it apart. Meanwhile, executives warned GE would significantly miss its profit targets for the year, without giving a new forecast.

The latest dose of bad news spooked GE’s already battered investors. Shares tumbled 8.8% on Tuesday to $10.18, reaching their lowest levels since the depths of the financial crisis. The stock has fallen about 50% in the last year, and GE was removed from the Dow Jones Industrial Average in June.

Dividend cuts are very rare these days, because the US economy is booming. Most companies, flush with cash from tax cuts, are ramping up their dividends. At least 291 S&P 500 companies have hiked their dividend so far this year, according to Howard Silverblatt of S&P Dow Jones Indices. Just two S&P 500 companies had cut their dividend as of early October, Silverblatt said.

“We find the move brave and necessary and a sign that Mr. Culp will not take half measures to improve the company,” CFRA analyst Jim Corridore wrote to clients. But GE tried to hush calls for the company to strengthen its balance sheet by selling stock. Some analysts have said GE Capital needs a cash infusion totaling billions of dollars. Tough times are ahead.

 

Todd “Bubba” Horwitz