Bloomberg
General Electric Co. (GE) ousted its chief executive officer (CEO) John Flannery just over a year into his tenure and replaced him with a renowned turnaround expert — Lawrence Culp, a surprise move that stoked the biggest rally in nine years for the company’s depressed shares.
Culp, who won The Wall Street’s praise for transforming manufacturer Danaher Corp., takes over immediately, said GE in a statement on Monday.
The company now expects to miss its 2018 earnings forecast and said that it will take an impairment charge for almost all of the $23 billion of goodwill associated with its struggling power segment.
Scott Davis, an analyst with Melius Research said, “He’s an outsider and maybe its going to take an outsider to come in and fix this thing.” “Flannery seemed like he was on the right path, but he was slow”, he continued.
Problems at GE
The stunning shake-up underscores the urgency at GE, which has lost half a trillion dollars in market value since its peak in 2000. The problems deepened in the past two years as GE faced cash-flow shortfalls, slumping demand and investigations by the US Securities and Exchange Commission.
The shares surged 13 per cent —to $12.85 at 9:36 a.m. in New York, after advancing as much as 16 per cent for the biggest intraday gain since March 2009. The rally had GE flirting with the highest level in almost two months after it fell 35 per cent this year through September 28. The company tumbled 45 per cent in 2017 and was expelled in June this year from the Dow Jones Industrial Average.
GE declined further comments and had no conference call planned.
Flannery had taken a series of steps to try to stop the bleeding, including cost cuts and significant portfolio changes. He had already pledged to sell or spin off longtime GE businesses including transportation, healthcare and lighting while narrowing the remaining company’s focus on power generation, aviation and renewable energy.
Culp, 55, who joined the Board in April, becomes the first outsider named as GE’s CEO in the company’s 126-year history, highlighting the monumental changes afoot at the beleaguered manufacturer. Thomas Horton, the former CEO of American Airlines who also joined GE’s Board this year, was named lead director.
“We will work very hard in the coming weeks to drive superior execution, and we will move with urgency”, said Culp.
Deal volume topped $22 billion during Culp’s 14 years as the CEO of Danaher, with his biggest move being the 2011 acquisition of the diagnostic-equipment maker, Beckman Coulter Inc. for $6.8 billion.
Impairment charge
The impairment charge is the latest setback for the struggling power unit, which has grappled with falling demand for gas turbines, declining market share and, recently, technical issues. GE disclosed last month that its flagship turbine is facing an oxidation issue that forced a customer to temporarily shut down two U.S. power plants. That prompted the biggest weekly decline since March. Analysts have been bracing for a write-down after Flannery acknowledged that the power assets acquired from Alstom SA, a rail transportation company, in 2015 were not performing as expected.
Former CEO Jeffrey Immelt pushed through the $10 billion deal just as the market started to turn.
While GE said it would fall short of its earnings forecast this year of $1 to $1.07 a share, the company didn’t provide a new outlook. GE had previously guided to the low end of the range. The company also said it would fall short of its outlook for 2018 free cash-flow, which Flannery had pegged at about $6 billion.