The Ghost Of Jack Welch GE
Recently Marketwatch.com ran an article that suggested that General Electric (GE) was the Rodney Dangerfield of large cap companies. The stock will not move from a narrow range, even when almost all six divisions of the company are doing well (with the possible exception of entertainment). Nearly two dozen analysts rank the company a "buy" or the equivalent.
At first blush, the theory has some merit. Over the last 52 weeks the trading range for GE has been $37.34 to $32.21. The stock now trades at $34, well down from over $50 in mid-2001.
GE's first quarter saw revenue grow 10% to $37.8 billion. All divisions grew smartly except energy which was off 3%. Cash flow from operations rose to $6.7 billion. Earnings from operations rose 14% to $4.95 billion. It would seem that the company is as close to perfect as a huge enterprise could be.
But, it isn't. From 1996 to 2000, Jack Welch's last full year at the helm, revenue grew 64% from $79.2 billion to $129.9 billion, according to Morningstar.. From 2001 to 2005, revenue grew from $125.9 billion to $149.7 billion, an increase of 19%.
The difference in the change in operating income for the two five year periods is also dramatic. From 1996 to 2000, operating income grew from $18.7 billion to $30.2 billion, up 62%. From 2001 to 2005 operating income grew from $30.8 billion to $37.8 billion, growth of 23%.
If analysts and investors want to ponder the reason for the mediocre performance of the stock and its 33% drop from its 2001 high, it is in the numbers.
Jack Welch's last five years at GE were almost unprecedented in terms of growth on top of an already huge revenue base. New management has not nearly matched it.
Does GE do better than the vast majority of companies? Absolutely.
But, by against the yardstick of its own past, GE's success has faded a bit.
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.
At first blush, the theory has some merit. Over the last 52 weeks the trading range for GE has been $37.34 to $32.21. The stock now trades at $34, well down from over $50 in mid-2001.
GE's first quarter saw revenue grow 10% to $37.8 billion. All divisions grew smartly except energy which was off 3%. Cash flow from operations rose to $6.7 billion. Earnings from operations rose 14% to $4.95 billion. It would seem that the company is as close to perfect as a huge enterprise could be.
But, it isn't. From 1996 to 2000, Jack Welch's last full year at the helm, revenue grew 64% from $79.2 billion to $129.9 billion, according to Morningstar.. From 2001 to 2005, revenue grew from $125.9 billion to $149.7 billion, an increase of 19%.
The difference in the change in operating income for the two five year periods is also dramatic. From 1996 to 2000, operating income grew from $18.7 billion to $30.2 billion, up 62%. From 2001 to 2005 operating income grew from $30.8 billion to $37.8 billion, growth of 23%.
If analysts and investors want to ponder the reason for the mediocre performance of the stock and its 33% drop from its 2001 high, it is in the numbers.
Jack Welch's last five years at GE were almost unprecedented in terms of growth on top of an already huge revenue base. New management has not nearly matched it.
Does GE do better than the vast majority of companies? Absolutely.
But, by against the yardstick of its own past, GE's success has faded a bit.
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.
posted by douglas mcintyre at 2:49 PM
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