The shifting sands of the Dow are testament to the companies that were once perceived as unassailable household names before falling victims to an evolving economy.
An original member of the S&P Dow Jones Indices, General Electric Co has lost its spot in the Dow Jones Industrial Average. A company which was once a towering industrial giant across the American business landscape is now struggling to retain its standing as an industrial powerhouse.
GE’s place in the 30-component stock average index will be replaced by Walgreens Boots Alliance Inc, a drug store chain, prior to the start of trading on June 26.
With the news reaching the market, GE’s shares shed 1.5% in after-hours trading while Walgreens’ stock jumped by 3%.
GE, one of the world’s most valuable company just 15 years ago, took a beating when its financial services ran amok into the eye of the global financial crisis in 2007-2009. Currently, it is the 6th smallest member of the Dow by market value and carries the index’s lowest stock price, making it the least influential component of the price-weighted average.
Facing with weakening profits and calls for divesting its assets, the 126-year-old engineering conglomerate is aggressively shedding costs and assets in order to strengthen its balance sheet under a new board and managers.
Its share prices haven fallen by 80% since its high in 2000, with John Flannery, its new CEO warning last month, that it may not be able to pay its 2019 dividend.
“It was at one time perhaps one of the quintessential U.S. companies, and like others that have been taken out of the Dow, it’s a reflection that they’re no longer seen in that light,” said Rick Meckler, a partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.
The shifting sands of the Dow are testament to the companies that were once perceived as unassailable household names before falling victims to an evolving economy. While some have simply disappeared, others, including Eastman Kodak, Goodyear, General Motors Co, Sears Roebuck, Bethlehem Steel, Westinghouse, Chrysler and International Paper, have found a fresh lease of life even though they did not manage to reclaim their previous economic status.
Co-founded by Thomas Edison, GE was the largest U.S. company by stock market value in 1993, only to be overtaken by Exxon Mobil Corp in 2005.
“We are focused on executing against the plan we’ve laid out to improve GE’s performance. Today’s announcement does nothing to change those commitments or our focus in creating in a stronger, simpler GE,” said GE in a statement.
Former CEO, Jeffrey Immelt had sought to lift ailing businesses by focusing on the company’s root strengths – jet engines, locomotives and other large equipment. Its industrial software business did not perform according to expectations forcing GE to scale down its ambitions last year.
Immelt had also built up GE’s exposure to manufacturing and servicing of coal and gas-fired electricity plants; however with demand for such plants falling dramatically in recent years sales have plummeted.
Wind and solar power plants have now become more cost-competitive.
In efforts aimed at restoring profitability and boosting cash flow, CEO John Flannery, who took over from Immelt in August 2017, is divesting additional GE business, including its locomotive one and one that makes small power-plant engines.