(Bloomberg Opinion) — In his nearly two full years as General Electric Co.’s chief executive officer, Larry Culp has made a habit of setting the bar low enough (some might say basement level) that he can still find ways to surprise investors with what at least feels like good news as he tries to steer the lumbering industrial giant toward a recovery. That pattern played out again on Wednesday when Culp, speaking at a virtual Morgan Stanley confidence, said that GE would generate positive free cash flow in the second half of 2020.
As I noted back in July, it made sense that this might be the case, given the typical back-end weighting of GE’s cash-flow performance and the company’s aggressive cost cuts in response to the coronavirus pandemic. GE had just gone through “only” $2.1 billion of cash in the three months ended in June, compared with an earlier forecast for at least $3.5 billion of cash burn and maybe as much as $4.5 billion. But try as they might — and believe me, they tried — analysts on the company’s July earnings call just couldn’t get Culp to commit to a positive cash-flow number in the second half. He would only say that there would likely be an “improvement.” That reticence is a big reason why GE shares sold off more than 4% on earnings day.
In the current environment, it’s hard to blame Culp for being conservative. Everything we thought we knew about our day-to-day lives has been turned completely upside down by the coronavirus pandemic. This is especially true for the aviation division that drives the bulk of GE’s cash flow. Whereas other CEOs in the industry have put a target on when airline travel will get back to normal, Culp has held off, wary of the false precision implied by these forecasts in such an uncertain time. Instead, he’s preferred to focus on things that he can control, like cost cuts.
If the GE of the past artfully managed earnings to fit expectations, the GE of Culp’s era appears more inclined to artfully manage expectations to fit earnings. And if you are going to go down one of those paths, under-promising and then over-delivering is the preferable of the two. While Culp acknowledged that aircraft departures had been moving “sideways” amid spikes in coronavirus cases across the U.S and Europe, things have marginally improved since July. The cash-generating health care division is also benefiting as patients start coming back into hospitals for scans and procedures, Culp said.
The problem I have is that in the intervening weeks between the second-quarter earnings call and Wednesday’s presentation, the GE board lowered another bar, this time with respect to Culp’s compensation. GE announced in mid-August that it was amending Culp’s employment agreement and extending his contract out to at least 2024, with an option for an extension to 2025. This was positioned as an endorsement of Culp as a leader of the company, but it read like an acknowledgment that GE’s near-term prospects had been significantly dulled.
The new terms allow Culp to receive a $230 million one-time equity award if he can get GE’s stock to hover around $16.68 during any consecutive 30-day period. That compares to an average stock price in the post-earnings interval of about $6.40, leaving a big gap to overcome — but the previous terms of Culp’s contract required him to boost the stock price to around $31 to get that equity award. If the stock only claws its way back to about $10, Culp can still walk away with an equity award worth $46.5 million. On Wednesday, GE shares had their biggest rally in four months on Culp’s free-cash-flow guidance.
Something doesn’t quite add up here. Is GE’s recovery story still intact? Culp’s comments on Wednesday would seem to indicate that’s the case; he reiterated a call for positive free cash flow in 2021 as well as a longer-term goal for high-single-digit free-cash-flow yields. The timeline has clearly been pushed out somewhat by the pandemic. But the idea that $17 or even $10 is an aspirational stock price for 2025 would seem to indicate a much more dire and drawn-out scenario. The thing about lowered bars is if you start to have too many of them, it can send some very mixed signals.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.
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Google’s Area 120 launches Tables, a rules-based automation platform for documents
Google’s Area 120 incubator today launched Tables, a work-tracking tool with IFTTT-like automation features and support for Google products including Google Groups, Google Sheets, and more. Currently in beta in the U.S., Tables automates actions like collating data together, checking multiple sources of data, and pasting data into other docs to hand off.
“Tracking work with existing tech solutions meant building a custom in-house solution or purchasing an off-the-shelf product, but these options are time-consuming, inflexible and expensive,” Tables general manager Tim Gleason explained in a blog post. “Tables helps teams track work and automate tasks to save time and supercharge collaboration — without any coding required.”
Using Tables, teams can program bots to schedule recurring email reminders when tasks are overdue, message a Slack or Google Chat room when new form submissions are received, or move a task to someone else’s work queue when the status is changed. Templates for things like a simple task tracker, webhooks for Slack and Zapier, and Sheets views and layouts are available, as are tutorials for applying tables to IT operations, customer relationship management, employee recruiting and onboarding, and product development tasks.
Tables can also ingest Sheets and .CSV files as custom templates and it supports forms for things like collecting customer resposes to surveys. Moreover, users can customize how they visualize and interact with data using grid views, record lists, kanban boards, and maps.
“Tables, with other teams at Google, is investing in automation,” added Gleason, who noted that Tables is already being used by customers including School of Rock, the Colorado Governor’s Office of Information Technology, and Somerset Public Library System in New Jersey. “It’s time to spend more time working and less time tracking it. Now you can work more efficiently and collaborate easily, no matter the task.”
Customers get up to 100 tables, 1,000 rows, up to 1GB of attachments, and 50 bot actions for free. Paid plans, which include up to 1,000 tables, 10,000 rows, up to 10GB of attachments, and 500 actions along with advanced history, sharing, forms, and views capabilities, cost $10 per month.
Ex-judges urge Senate to delay vote on justice
WASHINGTON (AP) — The Latest on the Supreme Court vacancy created by the death of Justice Ruth Ginsburg (all times local):
Ten former federal judges, including former FBI Director William Webster, are asking Senate leaders to withhold consideration of a Supreme Court nominee until after Inauguration Day.
The ex-judges, appointed by both Democratic and Republican presidents, say the judicial confirmation process has become “dangerously politicized.’’ They warn that injecting a bitter Supreme Court confirmation fight “into this noxious mix” could “unalterably change and diminish the public’s faith in this vital institution.’’
The legitimacy of the Supreme Court “is not something that can be recovered if it is lost,’’ the judges wrote in a letter to Senate leaders from both parties. “It is up to you to demonstrate the same restraint demanded of our judiciary.’’
In addition to Webster, who was a district and appeals court judge before heading the FBI and CIA, the letter is signed by nine other former judges. They include appeals courts judges H. Lee Sarokin of New Jersey, Thomas Vanaskie of Pennsylvania, and Ann Claire Williams of Illinois.
Republican Sen. Martha McSally, who is running in a special election in Arizona, says re-electing her is key not only to keeping the GOP in control of the Senate but also to ensuring that President Donald Trump’s Supreme Court nominee is confirmed.
If her Democratic opponent, Mark Kelly, wins, he could take office as early as Nov. 30. This would shrink the GOP’s Senate majority as it works to confirm Trump’s nominee. Kelly has maintained a consistent polling lead over McSally, who was appointed to the seat held by John McCain when he died in 2018.
McSally said Tuesday on “Fox & Friends” that, “We’re at ground zero here in Arizona. She said Kelly “came out and said he would be with (Senate Minority Leader Chuck) Schumer to delay and get some liberal activist judge on the bench. So the stakes have just gone up in our race, in particular. We’re a dead heat right now.”
McSally is among Republicans who believe the current Senate should vote on Trump’s nominee without delay. Currently, Republicans hold 53 seats in the 100-member chamber.
Senate Judiciary Chairman Lindsey Graham says Republicans have the votes to confirm President Donald Trump’s Supreme Court pick before the Nov. 3 presidential election.
Graham, R-S.C., said late Monday on Fox News that he wouldn’t be intimidated by Democrats, who vehemently oppose any confirmation vote until a new president is inaugurated. In 2016, Senate Majority Leader Mitch McConnell refused to allow a vote on President Barack Obama’s nominee, Judge Merrick Garland during an election year.
Two years later, Democrats fought unsuccessfully to halt the confirmation of Brett Kavanaugh over allegations that he’d committed sexual assault while in high school — allegations Kavanaugh denied.
“They tried to destroy Brett Kavanagh so they could fill the seat,” Graham told Fox News, adding: “It didn’t work with Kavanaugh. We’ve got the votes to confirm Justice Ginsburg’s replacement before the election. We’re going to move forward in the committee. We’re going to report the nomination out of the committee to the floor of the United States Senate so we can vote before the election.”
Graham, who subsequently took over the Judiciary chairmanship from Sen. Charles Grassley, said, “After Kavanaugh everything changed with me. They’re not going to intimidate me, Mitch McConnell or anybody else.”
“We’re going to have a process that you’ll be proud of,” Graham said. “The nominee is going to be supported by every Republican in the Judiciary Committee. We’ve got the votes to confirm the justice on the floor of the Senate before the election and that’s what’s coming.”
Republicans outnumber Democrats in the Senate, 53-47 and can confirm a justice by a simple majority.
Ralph Lauren Reorganizes Business, Cuts Workforce by 15 Percent
Ralph Lauren is taking steps to accelerate its Next Great Chapter plan to deliver long-term growth and value creation. Among them is a 15 percent reduction in its 24,000-member workforce in an effort to establish a simpler global organizational structure and the rolling out of enhanced technology platforms.
As reported last month, the $6.2 billion company began a strategic review to support future growth and profitability and create a sustainable cost structure. The review included three initiatives: The evaluation of team structures and ways of working; real estate footprint and related costs across distribution centers, corporate offices, and direct-to-consumer retail and wholesale doors, and the group’s brand portfolio.
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As part of the review of its headcount, Ralph Lauren plans to cut its global workforce by about 3,600 employees by the end of fiscal 2021, which is expected to result in a gross annualized pre-tax expense swing of about $180 million to $200 million, with savings realization primarily beginning in fiscal year 2022.
The company has had furloughs during the pandemic, but this is the first time it is having layoffs.
As a result of the workforce reduction, Ralph Lauren expects to incur total estimated pre-tax charges of about $120 million to $160 million. In addition to the actions revealed today, the company expects to take additional steps to implement its fiscal 2021 strategic realignment plan.
Over the past two fiscal years Ralph Lauren has moved to elevate its brands, which the company said has seen marked progress. As part of its Next Great Chapter plan, the company aims to attract a new generation of consumers; energize core products while accelerating high potential, underdeveloped categories; drive targeted expansion; lead with digital, and operate with discipline to fuel growth.
“The changes happening in the world around us have accelerated the shifts we saw pre-COVID, and we are fast-tracking some of our plans to match these – including advancing our digital transformation and simplifying our team structures,” said Patrice Louvet, president and chief executive officer. “These steps will enable us to progress our brand elevation journey and deliver Ralph’s vision in today’s dynamic environment – inspiring our consumers around the world and creating value for all of our stakeholders.”
As far as the organizational structure, the company plans to consolidate its global marketing and branding functions under David Lauren, who has been vice chairman and chief innovation officer. He will take on marketing responsibilities as well. His new title will be vice chairman, chief branding and innovation officer. Jonathan Bottomley, chief brand officer at Ralph Lauren, will be leaving the company.
The company declined to say which specific departments would be streamlined, except to say that it is simplifying team structures across the organization.
The company will also establish a new Consumer Intelligence and Experience organization, focused on leveraging consumer insights and predictive analytics to drive personalized consumer experiences at scale. In addition, it will reorganize the company’s corporate merchandising teams to combine core brand propositions, enabling greater connectivity and productivity. Ralph Lauren also continues to integrate Global Citizenship & Sustainability into all aspects of its business, making it a key responsibility for all leaders.
In the area of digital transformation, the company is changing how it operates by implementing new technology platforms across several key areas. This includes rolling out a cloud-based human resources and planning system globally, and elevating how it delivers for consumers through its Digitizing the Value Chain project. This is a company-wide initiative to simplify ways of working, better connect teams and digitize the product journey. The goal is to enable faster and more connected decision-making from product design to market. The company is also investing in technologies to help deliver a better consumer experience, with new digital capabilities that support areas such as omni-channel shopping, personalization, social commerce and augmented reality.
According to the company, these steps are expected to streamline the organization and simplify reporting lines, empower teams to make faster decisions and collaborate more easily, as well as support the delivery of one elevated Ralph Lauren vision and voice globally, while maintaining strong local capabilities and expertise.
Ralph Lauren, chairman and chief creative officer, said, “Over 52 years ago, this company started with a single tie and a dream that made it into a way of life. The timeless values we were founded on have propelled us on an incredible journey – one that has seen great challenges and amazing opportunities along the way. Through it all, our commitment to stay true to who we are, while evolving with the world around us, has helped to secure our future and our place as one of the world’s most beloved and inspiring brands.”
Like most fashion companies, Ralph Lauren got hit hard by COVID-19 and has decided to take more of its destiny in its own hands. As reported, for the quarter ended June 27, Lauren’s revenues fell 65.9 percent to $487.5 million from $1.4 billion a year earlier. Net losses totaled $127.7 million, or $1.75 a diluted share, down from earnings of $117.1 million, or $1.47, a year earlier. The company achieved digital commerce comparable growth of 13 percent, with digital operating margin expanding more than 1,000 basis points compared with a year earlier.
In the most recent quarter, the company had $2.71 billion in cash and investments and total debt of $1.9 billion.
Ralph Lauren has made several moves to strengthen the brand, pulling it out of 200 wholesale doors, cutting inventories, raising prices and putting more of an emphasis on direct to consumer On the earnings call last month, Louvet said, “The focus for us going forward is [direct-to-consumer] first.” After this comes digital commerce, through the firm’s own site and others.
At this time, no stores will be closing, but the company is reviewing all leases to make sure it has the right fleet in the right areas The company’s store strategy is to expand in top cities in areas where it is understored, relative to its peers, particularly in Europe, the Middle East and Africa, and the Asia Pacific region, and in neighborhoods where it sees consumers who are repeat customers and use the full omni-channel experience. The company opened new stores in Athens and Madrid in the past few weeks.
In April, when the pandemic first got underway in the U.S., Lauren himself said he would forego his entire salary for fiscal year 2021, in addition to his full fiscal year 2020 bonus. (Lauren’s salary and bonus last year were around $11 million.) Louvet’s salary was reduced by 50 percent during the crisis, and all the other 140 members of the executive and global leadership team reduced their salaries by 20 percent for the first quarter of fiscal 2021. In addition, the company’s board forewent their quarterly cash compensation for the first quarter of fiscal 2021.
While Lauren’s retail stores were closed in the spring, the company furloughed the majority of its store workers. As reported, Lauren’s store employees in North America were compensated when the stores were closed from mid-March and were paid in full through April 11. International store employees in regions where retail operations were required to remain closed received similar compensation. Following that period, all of its store employees where retail operations were suspended, as well as employees whose job were not conducive to continued remote working, were placed on unpaid temporary furlough through June. This included the majority of its store employees and a portion of its corporate employees in North America, Europe and select other parts of the world. These employees continued to receive regular employee benefits, including health benefits and any government assistance for those eligible.
Back in 2016, when Ralph Lauren introduced its Way Forward Plan under then ceo-Stefan Larsson, the company closed 50 stores and eliminated around 8 percent of the workforce, streamlining multiple layers of management. That was on top of a five percent reduction of the workforce the previous year.
FOR MORE STORIES:
Ralph Lauren Reinventing in COVID-19 Crisis
Ralph Lauren Gives Furloughs, Pay Cuts to Navigate COVID-19 Impacts
Ralph Lauren Revenues Fall 65.9 Percent
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