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GE may pull plug on appliances

The conglomerate confirms that it is considering the sale of its signature division.

May 17, 2008|Thomas S. Mulligan | Times Staff Writer
  • Salesman Hank Pham puts the price on a General Electric microwave in the appliances section of Howard's Appliance & Big Screen Superstore in San Gabriel. GE's Appliances division has supplied U.S. homes since 1907, but analysts see it as a drag on the conglomerate's earnings.
Salesman Hank Pham puts the price on a General Electric microwave in the… (Kevork Djansezian / Associated…)

General Electric Co. was long known for the brutal management style called "rank-and-yank": Everybody got an annual performance rating, and the bottom 10% were fired.

What was good for the workforce apparently is good for GE's mix of businesses, as the venerable conglomerate announced Friday that it might sell its signature appliances division, the unit that has supplied American homes since 1907. In terms of GE's corporate history, dumping the group that manufactures refrigerators, stoves and air conditioners would rank with IBM Corp.'s 2005 sale of its personal computer business to China's Lenovo Group Ltd.

Though there is scarcely a better-known U.S. consumer brand than GE -- a longtime pitchman was Ronald Reagan -- the business has been a subpar performer for years. It has failed to gain much headway in foreign markets and has begun to struggle domestically as the real estate recession has damped demand for big-ticket household appliances. It trails Whirlpool Corp. in the U.S. market for large kitchen appliances.

"It's been a definite drag" on earnings, said analyst Christopher Glynn of investment firm Oppenheimer & Co.

GE Chief Executive Jeffrey Immelt, confirming an initial report on the Wall Street Journal's website, announced Friday morning that the company was "reviewing strategic options" for the unit. The options, he said, included a partnership or joint venture, a spin-off to shareholders or a sale.

"GE appliances has a very strong brand, great distribution, a talented leadership team and for more than 100 years, has been one of the icons associated with GE in the United States," Immelt said in the announcement. "However, it remains primarily a U.S. business, meaning its fortunes are tied to the rise and fall of a single market. We want to make this good business great again by finding the right strategic solution -- a solution that will give appliances the global reach and investment required to compete more effectively."

Embarrassed a month earlier by an unexpected 5.9% drop in quarterly earnings and a surprisingly weak forecast of 5% earnings growth for all of 2008, Immelt has been under increasing pressure to streamline GE's business mix by paring the slower-growing branches.

The Fairfield, Conn.-based company, as Immelt noted in his statement, has sold $52 billion worth of "slower growth and more volatile businesses" since 2003, investing the proceeds in more profitable and faster-growing businesses and to buy back stock.

Still, after decades as a stock market leader, GE has underperformed the market since Immelt took the helm seven years ago. The company's shares fell 24 cents to $32.13 on Friday.

Among the other GE units that some consider ripe for sale is NBC Universal, whose growth also has disappointed. With the Beijing Olympics coming to the peacock network this summer, a sale is considered unlikely in the near term, but calls for a sale may pick up after that.

"I would think they'd be looking at it, because of the lack of growth and the cyclical nature of networks," said Jefferies & Co. analyst Robert Schenosky.

Immelt has steadfastly resisted such calls, saying the unit provides balance to GE's portfolio of holdings and has unexploited growth potential, particularly overseas.

If the appliance division ultimately was sold, foreign manufacturers or investors would be considered the most likely buyers. Analysts said it could fetch as much as its annual sales figure of $7 billion.

Despite its proud history, the appliance division has had a shrinking role within GE. With sales of $7.2 billion last year, appliances accounted for only 4% of the company's $173 billion in total revenue. The division is part of GE's industrial segment, the slowest-growing of the company's six huge segments and the one that contributes by far the lowest share of total profit.

Jim Aasen of Montrose, who has been repairing appliances since 1975, has witnessed the decline in GE's fortunes.

"When I started, they were so big," he said. "Now they are just another appliance company. I can't think of anyone who has asked for a GE appliance, specifically, lately."

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thomas.mulligan@latimes.com

Times staff writers David Colker and Meg James contributed to this report.

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