GE's Immelt: an Ever-Hotter Throne

The pressure to lift the share price is building. But CEO Jeff Immelt's options are limited

by Jena McGregor

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Illustration by Riccardo Vecchio

On July 11, Jeffrey R. Immelt finally got a break. And he hasn't had many during his time atop General Electric (GE)—especially in recent months. After a historic first-quarter fumble, in which he was loudly derided for an earnings miss of 7Cents below expectations, he met his targets. While profits were down, GE reported strong growth in its infrastructure business and a rebound in its commercial-finance unit. But the market didn't reward him. The battered stock price rose just 2Cents on the day's news, to 27.66. Since the beginning of the year it's down 25%, compared with a 15% drop in the Standard & Poor's 500-stock index.

Now, Immelt is fighting to revive faith in the sprawling $173 billion conglomerate, even as forces are working against him. The credit crisis and GE's April 11 earnings miss have put him under tougher scrutiny than at any time in his seven-year tenure as CEO. Investors are questioning the size and complexity of the company, and want him to move faster to shed assets. Immelt is acutely aware of the pressure, even as he continues to build GE for the long term. But he's trying to position the company to thrive in an extraordinarily tough economy that has greatly narrowed his options.

TUMULTUOUS CLIMATE

Immelt faces a range of daunting challenges. After leading GE through a national catastrophe and two recessions, he's now operating in a tumultuous market that's punishing stocks with even a whiff of financial exposure. He is trying to sell consumer finance businesses when potential buyers are skittish. A leader known for his external focus, he must also deal with a raft of pressing internal issues. Not only does GE's eroded stock make it harder to motivate employees in a much-vaunted performance culture, but the current efforts to get out of certain businesses have left more than 50,000 employees in a state of limbo that makes it hard to deliver results. Joseph M. Hogan, president and CEO of the $14 billion GE Healthcare unit, is leaving the company, which could signal more changes ahead.

While Immelt, 52, insists that "we're not going to let one quarter define GE," he is making some big moves. On July 10, GE announced plans to spin off the struggling Consumer & Industrial Div., which includes its iconic lighting and appliance businesses, just two months after Immelt said he would sell only the appliances segment. The company is also trying to auction off its $30 billion credit-card unit. Some analysts and investors are ramping up the chatter about selling off NBC Universal, though Immelt says that isn't on the table. "We unfortunately have a company here that is way behind schedule for redoing the portfolio," says Sterne Agee analyst Nicholas P. Heymann. Morgan Stanley (MS) analyst Scott Davis likes the energy: "Their backs are up to the wall, and they seem to be fighting hard."

While Immelt still has strong support among long-term shareholders, the first-quarter miss prompted tougher scrutiny of his decisions. "Prior to April of this year, I pretty much agreed with everything he was doing," says Jim Hardesty, president of Baltimore-based Hardesty Capital Management, which holds GE shares. Now he's less inclined to give Immelt the benefit of the doubt. "If this was year three, I would say, 'Oh well.' It's not year three, it's year seven. We've been waiting a long time."

BITTEN BY SUBPRIME

Along with the burden of replacing the most celebrated CEO of his generation, Immelt inherited an inflated stock price—the so-called Welch premium—that fostered unrealistic expectations. Yet he has still managed to produce 14% growth in annual earnings and 13% annual revenue gains, on average, over the last five years. He has overhauled the portfolio, buying $88 billion of assets in high-tech growth areas like alternative energy and bioscience while dumping more than $55 billion of less attractive plays such as GE Plastics, his old stomping ground.