GE – We Needed The Kitchen Sink – And We Did Not Get It!

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SEE LAST PAGE OF THIS REPORT Graham Copley / Anthony Salzillo

FOR IMPORTANT DISCLOSURES 203.901.1629 / 203.901.1627

gcopley@ / asalzillo@ssrllc.com

October 30th 2018

GE – We Needed The Kitchen Sink – And We Did Not Get It!

  • We had expected better – not better results, but better detail. Consequently, despite the dividend cut and the split of the power business, we do not believe that GE knows where the edge of the woods is yet – let alone a path out of them.
    • Even with Mr. Culp’s limited tenure we had hoped that, even though Mr. Flannery was moving too slowly, all the issues were either known precisely or framed within a range.
    • GE needed a true “kitchen sink” quarter, all skeletons exposed in all businesses.
  • While the dividend cut was largely anticipated, the Power move seems like a restructuring targeting making fixing the businesses more manageable and measurable longer-term – it is not a fix in itself.
    • We believe that the Power business break-up is focused on creating two businesses, both of which have issues, but different issues. While the issues have not been detailed, splitting the management of the overall problem may make it easier to find the appropriate solution.
    • In the meantime, we are likely to get a delay in action while the company goes through the process of separation. If this leads to a divestment opportunity it will be worth the wait.
  • Most disappointing is that, like his predecessor, Mr. Culp has kicked the can down the road, promising to get back to us in 2019. The warning signals here are many but not limited to:
    • It is possible that the company still does not have a plan for Power beyond this initial step – this is possibly the right first step but the second will be more important.
    • Maybe the company is rethinking the planned split, especially if it is unclear that the remaining company has adequate cash flow to operate – this would be a negative.
    • Does GE have its hands around GE Capital yet – we suspect not, another negative.
  • We expected Mr. Culp to throw everything into this earnings report – clear the decks and reset a base – this is his style. The fact that he has not just raises an even larger red flag.
    • We still believe that GE will see a stock price below $10, especially if there is a news vacuum before 2019 and if investors start to feel that GE has more to disclose.
    • At the time of publication SSR’ server was blocked from access to GE’s website! No other company’s – another troubling sign.

Exhibit 1

Source: Capital IQ and SSR Analysis

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