MAY 2017 BROUGHT on EPG, the shorthand for the annual Electrical Products Group conference at which industrial investors and executives gathered. By tradition, GE was the headliner. It had the last slot on the last day. Some said that it had that spot because it was the biggest company there, but others considered GE’s placement in the schedule just a ploy to discourage people from leaving the gathering early.
The conglomerate’s prospects had looked promising in early 2017, with the stock above $30 and the broader stock market showing strong momentum. GE investors then were hopeful that Immelt’s big bets on oil and power generation would finally pay off.
But by May the stock market was booming and GE wasn’t. Trading down 11 percent for the year, its stock had dipped again below $30, much to Immelt’s ongoing annoyance, and investors were seeking reassurance that GE’s financial targets remained intact. They openly wondered whether Immelt would stick by his 2018 profit target of $2 a share. Senior executives were perplexed by the long-held target, and Jeff Bornstein, the CFO who had given his word to Trian at the risk of his job, had privately urged Immelt to back away from a promise GE seemed unlikely to keep.
Immelt was as accomplished as anyone at the task of presenting to crowds like EPG’s. He had honed his ability to navigate a deck of PowerPoint slides over the decades. But this year was different. The confident, affable salesman ready with a smile and a joke just wasn’t himself as he faced a skeptical audience inside the ballroom of the Longboat Key Resort in Sarasota, Florida.
Shakily, he raced through the highlights of his slides. On the last one, he defended the company’s 2018 earnings goal. Sort of. If the oil and gas markets didn’t improve, Immelt said, the $2 target for 2018 would be a reach and the company would have to cut even more costs to have a chance of delivering on it.
In fact, Immelt knew that in all likelihood his last and biggest pledge to the market was going to come up short. It was wishful thinking at best that GE could deliver the $2 of earnings he had promised. But Immelt didn’t say that onstage at EPG.
In the CEO’s view, his eventual successor would inevitably have to reset the earnings target. Cutting the target once would be bad enough, surely triggering an angry sell-off of company shares. Better for investors and the company, in Immelt’s thinking, to wait and let the next boss decide when and how to take the $2 target down.
Now, though, the crowd buzzed with confusion.
Barclays analyst Scott Davis asked bluntly if Immelt was backing the target.
“It’s going to be in the range, Scott,” Immelt said, growing hot at being challenged. “If we wanted to take it off the page, we would have taken it off the page. We didn’t want to.”
Deutsche Bank analyst John Inch, fresh off downgrading GE shares, was sitting front and center during the presentation and was dumbfounded by what he was seeing. “There was a stunned reaction,” he said. “Jeff had clearly lost his composure.”
The questions didn’t get better. Was the Alstom deal not working? Could the Power division improve its cash flow? Would the company consider spinning off the Healthcare division, which Immelt had once run?
Immelt, as he had done before, argued that investors had GE all wrong and were mispricing a stock that should have been above $30 a share. The Aviation business was booming, outpacing competitors with its newest model. The once-troubled Healthcare unit was on the upswing. The oil and gas business, which had suffered through sliding crude prices, was now riding a rebound.
“It’s not crap. It’s pretty good, really,” Immelt said of his company’s financial performance.
When the grilling was over, Immelt wasted no time getting out of Sarasota. In less than an hour, he was aboard a GE jet. Immelt, his credibility on Wall Street battered as much by his besieged tone as his shaky assurances, limped through the rest of the week as he spoke privately with frustrated investors who were seeking clarity on the state of the company.
Ed Garden had recently made a rare public speech and declared that GE could actually exceed the 2018 goal Immelt had just waffled on. Undermined by his own CEO, Garden fumed. Among the calls from investors was one from Trian. The once-friendly activist made clear it would now push for a seat on GE’s board.
Suddenly, one question that Immelt had batted away with little more than a joke during the questioning in Florida now seemed significant.
JPMorgan analyst Steve Tusa, who had been telling investors to sell GE shares, said to Immelt, “Hate to put you on the spot, but I’d like to get any update on succession planning, potential time,” Tusa said. These were delicate matters that analysts didn’t usually raise so publicly; it was telegraphed by GE staffers that Immelt loathed being asked about his retirement. But blood was in the water, as Tusa’s jocular tone showed. “I know,” he joked, “you just can’t bear the thought of not coming down to Sarasota.”
Immelt’s unraveling on the stage exposed an inability to see that his leadership had limits. The near-death experience in the financial crisis created a pool of potential investors that wouldn’t trust GE with their money while the same management team remained at the top. For them, the first step in any solution to GE’s problems was that Jeff had to go.