GE drops out of the Dow after more than a century
View(s):Wall Street Journal, June 19 - General Electric Co. will drop out of the Dow Jones Industrial Average (DJIA) next week, a milestone in the decline of a firm that once ranked among the mightiest of blue-chips and was a pillar of the US economy.
The decision to drop GE, an original member of the Dow that has been a part of the 30-stock index continuously since 1907, marks the latest setback for a company that once was the most valuable US firm but has been hit hard in recent years by the unraveling of its finance business and competitive problems.
With the departure of GE and the addition of Walgreens, “the DJIA will be more representative of the consumer and health care sectors of the US economy,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices, the company behind the Dow. “Today’s change to the DJIA will make the index a better measure of the economy and the stock market.”
GE shares have tumbled 55 per cent over the past 52 weeks, erasing more than $100 billion in wealth, as the company has switched leaders, slashed its dividend payment and pursued a restructuring that could result in a breakup of the struggling conglomerate. It is the cheapest stock of all 30 Dow components.
“We are focused on executing against the plan we’ve laid out to improve GE’s performance,” a GE spokeswoman said. “Today’s announcement does nothing to change those commitments or our focus in creating in a stronger, simpler GE.”
While investors don’t expect the company’s departure from the Dow to be a long-term drag on its share price, some said its exit was a potent symbol of how far the company’s elevated status in the US economy has fallen.
“I think it tells you that GE no longer qualifies as one of the most important companies in our country,” said Michael Farr, president of investment management firm Farr, Miller & Washington. “In a technology driven world, it has been challenging for manufacturing companies to remain relevant.”
GE’s market capitalization peaked at $594 billion in 2000, making it the most valued US company. It has shrunk over the years.
Under former CEO Jeff Immelt, the company shed its NBC Universal media business and sold off most of its GE Capital arm, which was once of the biggest US lenders.
More recently, the Boston-based company struck a deal to sell its century-old railroad business, part of a plan to shed $20 billion worth of assets by the end of next year. It is also looking to sell its century-old lighting business.
Investors are waiting for a major portfolio update from CEO John Flannery, who took over last summer and continues to preach that “everything is on the table.” Mr. Flannery has also been slashing jobs and cutting costs as GE struggles with slack sales in its big Power business, which sells turbines for power plants.
GE’s decline has left it with a market value of $113 billion, but it wasn’t the smallest industrial in the venerable index.
GE’s market cap and annual revenue are still larger than Dow member United Technologies Corp which manufacturers Otis elevators and Pratt & Whitney jet engines.
Walgreens has expanded in recent years by merging with European drug wholesaler Boots Alliance and buying up stores from rival Rite Aid.