GE to spin off energy unit Apr 2. GE to be GE Aviation

https://www.reuters.com/business/aerospace-defense/ge-aerospace-forecasts-10-bln-operating-profit-2028-sets-shareholder-return-2024-03-07/

" GE Aerospace, which makes engines for Boeing (BA.N), opens new tab and Airbus (AIR.PA), opens new tab jets, has experienced a surge in demand for aftermarket services as a strong rebound in travel and a shortage of new jets prompt airlines to keep planes in the air for longer."

"More than 70% of the $24 billion annual revenue that the unit’s commercial engines business generates comes from services.

"GE separated its healthcare business last year and its energy and aerospace businesses will be spun off into independent companies on April 2.

"Culp said GE Aerospace will focus on M&A deals that complement and accelerate its business.

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Wow…

I worked for GE for a bit in the mid-80s, a much different company then under Jack Welch. It’s sort of disappointing to see them down to just aviation.

I wonder if someone will foul that operation up as well.

Was it Buffet who said something like “It’s best to have a business that can be run by any idiot… because eventually, if will be.”?

Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.

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GE Aerospace seems to have great cash flow from its recurring maintenance business. Sounds like a Warren Buffett candidate.

DB2

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iirc that was always Welch’s policy: to dump the lower performing divisions. We old phartz remember when GE made home appliances, and light bulbs, and TVs. That model is in vogue again, with J&J and Kelloggs breaking up, and the CEO going to whichever division he thinks will pay him higher bonuses.

Steve

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If a division is not number one or number two in the industry, get rid of it.

This gave me an idea about stock picking. Most companies describe themselves as ‘a leader’ in the industry but there is only ONE ‘THE leader’ of the industry. Elsewhere I ran across an article about news articles. The gist was that companies were usually mentioned in order of their rank in the industry, (Tesla, BYD, the rest).

Put the two together, pay attention to the order in which companies are mentioned and invest only in the top ones, the rest are speculative.

The Captain

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The other side of the proposition would be that a company that is not number one or two, has more growth potential, by outcompeting numbers one and two and taking share away from them. Companies that dominate an industry can only grow as fast as the industry. We old phartz remember when Toyota was a non-factor in the US market. and GM’s share was over 50%.

Steve

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In the companies I worked for, the MBA divided divisions into quadrants using some measure of profitability horizontally and growth rate on the vertical.

Each quadrant has a name. Low grow, low profit is a dog. High profit, low growth is a cash cow. High growth low margin is a problem child. High growth high profit is a star (rarely mentioned in most companies to avoid attracting competition). Problem child usually becomes a star (they raise prices and customers are willing to pay it) or a dog (and get sold or shut down).

Dogs are usually sold, but its interesting that a dog in one company can be much more to the buyer. Sometimes even a star. Some good companies have very high standards and sell off relatively good businesses.

In GEs case sale of their locomotives business was probably a necessity to pay down debt. Might have been a star. But they needed the funds.

The business books usually say only no 1 and no 2 can be profitable with a full spectrum of products. The others will be marginally profitable or they must specialize in a niche.

Niche business can do very well when well managed. They can indeed be the leader in their specialty. General manufacturer usually likes to mass produce a limited number of products. Niche player can customize to customer needs.

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It’s certainly a possibility but it is not the way to bet unless you see a real disruptor. For example ARM vs. Intel 25 years ago. Back then Apple vs. IBM was a losing bet.

The Captain

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