General Electric (NYSE:GE) has been on the move in 2015. The company has announced a historic plan to divest the majority of GE Capital, pledging to sell about $200 billion worth of assets that aren't aligned with its industrial activities, the stock has been outperforming the S&P 500 by a wide margin, and management has made significant progress toward GE becoming the world's leading digital industrial company.
Overall, it's been a positive year for General Electric, but there were a few hiccups along the way. Here are some of the worst headlines that affected GE in 2015.
GE Appliances' sale to Electrolux gets terminated
After more than a year of deliberation with the U.S. Justice Department, GE decided to abandon its agreement to sell the iconic appliances division to Swedish-based Electrolux (NASDAQOTH: ELUXY) and look elsewhere to sell the unit. Regulators were reluctant to approve the $3.3 billion transaction because they believed it would create an overly dominant position in the U.S. cooking appliances market, sparking antitrust concerns.
The Justice Department argued that between the combined GE and Electrolux company and rival Whirlpool, the two entities would control a combined 88% of cooking ranges sold in the U.S. Considering GE withdrew from the deal, it's clear that GE and Electrolux failed to ease the Justice Department's concerns that the venture would hurt the millions of consumers who buy cooking ranges each year.
Now that the deal is terminated, GE is entitled to a $175 million breakup fee from Electrolux, and it will have to find a way to sell the division without meeting the same resistance from regulators.
Oil and gas under pressure
Oil's weak performance in 2015 took a toll on GE's oil and gas segment. Through the first nine months of 2015, the segment saw its revenue decline by 13% year over year to $11.9 billion and its operating profits fall 10% to $1.6 billion. Beyond weak oil prices and volumes, the stronger U.S. dollar also weighed on the segment's year-to-date performance.
Undoubtedly, it's been a challenging environment for oil and gas players, and that's the reason GE has chosen to focus on controlling costs as a way to improve its productivity while the oil market remains weak. The company expects to cut $600 million in expenses from the segment this year and an additional $1 billion in 2016. This more efficient cost structure will help improve the segment's competitiveness, and if prices do recover, it should enhance its profitability.
The reality of GE's industrial business is that it's so massive, the results are often highly correlated to worldwide economic activity, which has been sluggish at best in 2015. By comparison, GE's total industrial revenue has fallen 1% year over year in the first nine months of 2015, and increased by 4% on an organic basis, which adjusts for factors like currency headwinds, acquisitions, and dispositions.
CEO Jeff Immelt noted on the third-quarter earnings call that "the U.S. is still OK and Europe is appreciably better. Meanwhile, growth markets are facing some headwinds in resource pricing and currency." In other words, it's been a mixed macro picture for GE, which is arguably inhibiting it from firing on all cylinders.
Still, Immelt maintains that activity for its industrial products and services are at the highest levels it's ever seen, believing there's still plenty of opportunity for it to achieve its long-term goals in this low-growth and volatile environment. Of course, investors will want to see GE deliver on this promise with increased revenue growth before organic adjustments.
Looking ahead: these challenges remain
Based on GE's year-to-date stock performance, the negative headlines that affected GE's business this year weren't enough to derail the enthusiasm toward its decision to exit the financial services business and return to its industrial roots. Although GE investors remain optimistic about its future today, the company still faces continued challenges from the oil industry, a sluggish global growth environment, and finding a potential suitor for its appliances division. How GE navigates these challenges will give investors a greater understanding of management's ability to execute.