May 14 (Bloomberg) -- General Electric Co. Chief Executive Officer Jeffrey Immelt tried to sell off the company’s appliance and lighting businesses in 2008, only to have the effort derailed by the financial crisis. Now Chip Blankenship has the job of proving the division was worth keeping.
Blankenship is the new head of the $8 billion GE business that makes the company’s last consumer brands, including dishwashers, refrigerators and light bulbs. He took over the post in January, as the company increasingly shifts its focus to industrial products such as locomotives and jet engines.
Immelt, who engineered the strategic shift, plowed $1 billion into new appliance offerings and factories in the U.S., in a bid to make such products stand out and reap higher profits against competitors from Korea’s Samsung Electronics to China’s Haier Electronics Group. Blankenship’s performance may well determine if GE stays in consumer brands or completes its evolution away from the products consumers know best.
“We said we could do it if we got that investment, and now we’re at the point in this experiment where we have to be able to do what we say,” Blankenship, 46, said in his first interview since taking over his new post. “We’re making the last products with the GE monogram on them, and we want to make sure we do that justice.”
GE climbed 0.7 percent to $23.01 at the close of trading today in New York. The shares have risen 9.6 percent this year, trailing a gain of 15.7 percent by the Standard & Poor’s 500 Index.
Blankenship succeeded Charlene Begley, No. 29 last year on Fortune magazine’s list of the most powerful women in business, when she took a medical leave. The appointment is intended to be permanent, GE said.
His success requires navigating a shift away from the incandescent light bulb, one of founder Thomas Edison’s most recognizable innovations, and tepid demand for refrigerators and washing machines as the U.S. housing market recovers.
Faced with competitors who captured larger shares of the market for light-emitting-diode bulbs, GE went big, overhauling entire lighting systems at corporate offices for Marriott International Inc. and MetLife Inc. In appliances, the company introduced a finish designed not to clash with stainless steel or other colors to tempt buyers who want one new item, not a whole new kitchen.
GE is starting to see results. Operating income at the division Blankenship inherits grew faster than at any other unit in the first quarter, surging 39 percent to $79 million.
That still represents just 2.2 percent of the Fairfield, Connecticut-based company’s $3.53 billion of net income in the period. What’s more, its profit margin of 4 percent is GE’s second-thinnest, trailing only the new and rapidly growing energy management division.
Not all the benefits GE receives from the unit accrue to the bottom line, though, said Christian Mayes, an Edward Jones & Co. analyst in St. Louis who has a hold rating on the shares. Only about 58 percent of the company’s stock is held by institutional investors, the seventh-lowest among companies in the Standard & Poor’s 500, data compiled by Bloomberg show. Appliances and light bulbs help connect GE to the rest of its owners, Mayes said.
“That’s how a lot of people know the company, from their refrigerator or dishwasher, and they trust it,” Mayes said in a telephone interview. “A lot of the relevance of this business is that it’s so recognizable to retail investors.”
To lead the business, Blankenship wanted a better understanding of its products. Not long after taking over the appliances unit in 2012, he hauled a dishwasher into his Louisville, Kentucky, home and took it apart. Since then, he’s spent a shift every month or so on the factory floor, helping to assemble refrigerators and water heaters.
“I’m a product guy from way back and I want to know what we’re trying to make and sell,” Blankenship said.
The new Home & Business Solutions CEO, who has a doctorate in materials engineering from the University of Virginia, began his GE career in 1992 at the company’s research and development operation before moving to the energy and aviation divisions.
By 2008, he was general manager of the $5 billion commercial jet-engine business.
A significant hurdle in his current job is taking advantage of an economic recovery that hasn’t yet reached every section of the lighting and appliance unit’s target market.
U.S. housing starts surged to a 1.04 million annual pace in March, the highest level since June 2008, according to Census Bureau data. While that’s helped buoy demand for GE appliances among homebuilders, sales from consumers haven’t come back as fast, Blankenship said.
That’s a challenge for GE, which trails only Whirlpool Corp. among appliance brands, because about 85 percent of such machines are sold to retail customers, according to Evan Barrington, vice president at Stephenson Co., a Louisville-based market research firm that tracks the appliance industry.
“With high unemployment rates and the economy not growing terribly fast, there are some people who are going to be more hesitant to replace appliances until they absolutely have to,” Barrington said in a telephone interview.
Blankenship is targeting those buyers with a new matte-gray metal finish named Slate, designed to blend well with existing appliances in cost-conscious customers’ kitchens.
Sales have been strong, doubling targets in the first quarter, Blankenship said without divulging the numbers. GE plans to expand the line later this year.
The company has hired 3,000 additional workers in Louisville and added products including high-efficiency, front-loading washers and dryers unveiled last month. Both machines have wider openings and can be purchased with matching risers to lift them an additional 7 inches (18 centimeters) off the ground, changes designed to make it easier to load and unload laundry.
Immelt, who led President Barack Obama’s Council on Jobs and Competitiveness throughout its existence in 2011 and 2012, has said adding to GE’s Louisville workforce is part of a wager on the reinvigoration of U.S. manufacturing.
A 2009 statement announcing that the new washers and dryers would be made in Louisville’s Appliance Park described the hiring as “building upon GE’s vision of an ‘American Renewal.’”
At the lighting business, which traces its lineage to Edison’s 1879 invention of the first affordable incandescent bulb, sales have fallen for five straight quarters, including a 5 percent drop in the three months ended March 31, GE has said.
One of the main culprits for the drop is governments phasing out bulbs that use the technology Edison helped pioneer in favor of longer-lasting LED lamps, Blankenship said. Another is sluggish economic growth, particularly in Europe.
“This is a very challenging environment right now with this shift in technology,” he said. “We find it a very competitive marketplace, and on top of that, it’s a very tough economy.”
Companies such as Lighting Science Group Corp. are grabbing bigger shares of the $14.4 billion market, especially in North America where GE gets most of its lighting sales, Vrinda Bhandarkar, research director for LED lighting at Mountain View, California-based Strategies Unlimited, said in a telephone interview.
The stakes are high, with global LED sales on pace to grow 50 percent to about $21 billion by 2017, she said.
“GE’s not used to dealing with these small companies,” Bhandarkar said. “They were used to feeling like No. 1, but they’re not when it comes to LED bulbs.”
Blankenship acknowledges that this is a new challenge, for him and the whole company.
“It used to be us plus a couple of competitors,” he said. “Now it’s us plus hundreds.
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