It was a busy day of announcements for General Electric (NYSE:GE), and investors generally didn't like what they heard. Shares of GE traded down 6% on Wednesday morning on disappointing 2021 guidance and GE's moves to restructure itself after years of underperformance.
Larry Culp was hired as CEO in October 2018 with a mandate to reverse a slide that had seen the stock lose more than 75% of its value from its heyday. His initial efforts have largely been well received, and in an investor presentation on Wednesday, the transformation moved into hyperdrive.
GE confirmed plans to sell GECAS, its aircraft leasing operation, to AerCap Holdings (NYSE:AER) in return for a 46% stake in AerCap and about $24 billion in cash. That money will be used to pay down debt, which should go a long way toward healing the company's balance sheet.
The company hopes to bring its net debt down to 2.5 times earnings before interest, taxes, depreciation, and amortization (EBITDA) in the next few years. GE is also planning a one-for-eight reverse stock split to reduce the number of shares outstanding, reflecting its shrinking footprint.
GE is making the right moves, but the transformation is not going to happen overnight. The company said it sees adjusted earnings of $0.15 to $0.25 per share in 2021, shy of analyst consensus expectations for $0.26.
After years in the wilderness, the company is finally back on investors' radar screens. GE shares have more than doubled since the end of September. On Wednesday, we saw signs that Culp's plan has the company traveling in the right direction, and we received a reminder of how long it is going to take to get there. Given the way the shares have climbed, it is no surprise investors are taking some profits following the update.