GE takes tumble amid airline industry troubles. State Street makes no-layoff pledge. Hospitals stock up on malaria drug.
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Apr 17, 2020, 8:20 PM (4 hours ago)
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Welcome to Talking Points PM for April 17. Governor Charlie Baker addresses questions about reopening the economy. State Street CEO Ron O'Hanley promises he won't lay off employees during the pandemic. And Boston hospitals put a controversial drug to use. We made it through another week, folks. Enjoy the weekend. You've earned it.
Programming note: The Boston Globe is partnering with restaurants to provide meals to local hospitals. The Globe is looking for donations, including in increments as small as $10, to help pay for the meals. Click here to learn more and to contribute.
CHESTO MEANS BUSINESS
GE's turbulent flight: General Electric wasn't just the new kid on the block when it moved here in 2016. It was also the new giant of corporate Massachusetts, worth more than the five next largest public companies in the state — combined.
The bigger they come, the harder they fall.
GE lost its grip on the No. 1 ranking by market capitalization to Thermo Fisher Scientific, in 2018. This week brought a new demotion: GE fell out of the top five, sliding down to No. 7.
GE bounced back to fifth place, thanks to a nearly 10-percent surge in the stock today. An announcement from Boeing, a key client, that it would reopen Seattle-area factories likely helped.
But GE’s closing price today of $6.84 a share is no cause for celebration. The stock is down nearly 40 percent, year to date. GE’s current market cap of $59.8 billion remains less than one-fourth of its size four years ago. The company is one bad day away from falling from the top 5 again; Biogen and TJX are worth more than $59 billion, too, right behind GE.
So what happened?
The recent shuffling of the ranks is in large part due to how investors view the biggest public companies in Massachusetts, and how they might weather the storm that is upon us all.
Shares in American Tower, the state's second-most valuable company, have remained solid this year; it owns cell-phone towers, and those obviously remain in high demand. Vertex Pharmaceuticals, the No. 4 company, has seen its stock rise in part because it promised investors its business outlook would not change in the face of the pandemic. Biogen, which had briefly edged ahead of GE this week, has offered similar assurances.
Then there’s Raytheon Technologies, which is No. 3 in large part because of the recently completed merger of Raytheon and United Technologies Corp. UTC was the bigger company, but their executives decided the combined aerospace companies would use Raytheon’s name and its Waltham headquarters.
The COVID-19 pandemic, meanwhile, has taken its toll on GE's market cap. GE Aviation, the jet-engine manufacturing and servicing arm, has long been the company’s most important profit source, its crown jewel. Maybe not anymore. The number of commercial flights has fallen steeply across the globe, as business and leisure travel both take a nosedive. GE’s fate is now linked to the recovery of the hobbled airline industry, a big unknown.
Chief executive Larry Culp moved swiftly to adjust. On March 23, Culp announced he would cut 10 percent of GE Aviation’s US workforce, or about 2,600 jobs, plus furloughs for many other workers. Culp won’t take a salary for the rest of the year, and GE Aviation chief David Joyce gave up half of his; other top executives at GE are taking pay cuts, too.
The declines on the commercial side will be somewhat mitigated by GE Aviation’s defense work, a smaller but important business line. On Thursday, GE announced it had won more than $476 million in military contracts in the last month alone. Much of that work will be done at the GE jet-engine plant in Lynn.
The Chicago-based GE Healthcare division is undergoing turbulence as well. Elective medical procedures have fallen off a cliff during the pandemic, driving down hospital purchases. On the plus side, GE has doubled its capacity for ventilator production since the COVID-19 outbreak began, and plans to double it again by the end of June to keep up with the unprecedented demand.
And the sale of GE’s biopharma business to Danaher last month netted $20 billion, money that should help GE pare down its pile of debt. (Analysts point to GE’s excessive debt as another big concern weighing on the stock.)
Culp also expects the pandemic to hit GE’s other two main industrial businesses, both in the energy sector. Stay tuned for the next earnings release, on April 29, to learn more.
Culp hoped in February that the financial harm from the virus would be largely limited to GE’s operations in China. However, GE last week finally gave up on its previously stated financial guidance for 2020, saying the evolving nature of the pandemic made such a prediction impossible to pull off with accuracy.
Much of GE’s decline since 2016 happened before Culp took charge in October 2018. He is widely credited with stabilizing the company; his turnaround efforts began to pay off last year, when GE’s stock was one of the state’s strongest performers.
How GE fares in 2020 will depend in part on whether Culp can restore faith in the aviation business and substantially trim the company’s debt. But Culp, like all CEOs in this perilous time, knows that the biggest factors could be outside of his control.
Jon Chesto is a Globe reporter. Reach him at jon.chesto@globe.com and follow him on Twitter @jonchesto.
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