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December, 201810:28 PM



Struggling GE removes CEO, warns on 2018 earnings

Struggling GE removes CEO, warns on 2018 earnings

H. Lawrence Culp assumed the helm of General Electric on Monday in a surprise move meant to stem a two-year decline that has humbled the once-mighty conglomerate and roiled investors.

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02.10.2018 08:38 AM

H. Lawrence Culp assumed the helm of General Electric on Monday in a surprise move meant to stem a two-year decline that has humbled the once-mighty conglomerate and roiled investors.

The ouster of John Flannery gave GE its third chief executive in about 14 months. 

GE also announced a massive asset-write down but its shares surged on Wall Street on Monday's news. The engineering giant's market value has been cut roughly in half in the last year.

In announcing Culp's rise, the company, which was bumped from the prestigious Dow Jones Industrial Average in June, cited his history as chief executive of the industrial and healthcare conglomerate Danaher, where GE said he presided over a quintupling of market capitalization. Culp was named to the GE board earlier this year.

GE's other bombshell was that it planned to write down effectively up to $23 billion in value from its troubled power business, the prime catalyst of its nosedive in stock market valuation. GE said it would fall short of key earnings targets for 2018. 

"GE remains a fundamentally strong company with great businesses and tremendous talent," Culp said in a statement. "We will be working very hard in the coming weeks to drive superior execution, and we will move with urgency. 

"We remain committed to strengthening the balance sheet, including de-leveraging."

Shares of GE finished up 7.1 percent at $12.09. 

Flannery was enlisted last summer amid deep disillusionment with former Chief Executive Jeffrey Immelt, who presided over major GE acquisitions in power and oil services that became albatrosses when those markets shifted.

The power generation business has been particularly weak in recent years, due in part to the growth of renewable energy sources that has dented demand for GE's turbines.

Flannery's response included the sale of some assets and the elimination of more than 12,000 GE power jobs. 

He also unveiled plans in June to shed its oil services and health care businesses to concentrate on power, aviation and wind turbines.

The decision to exit health care was controversial and could potentially be reversed under Culp.

While the low-key Flannery won praise from some investors and analysts for candidness in comparison with the imperious Immelt, the company continued to miss key targets as its power business has continued to struggle.

GE outsider

During a July earnings conference call, Flannery said demand for key power equipment remained depressed and that it would "take some time" for the situation to correct.

Shares of GE last week hit a nine-year low, after news of a glitch in new power-plant turbine technology that temporarily shut two electricity plants in Texas -- adding to woes in the company's industrial segments.

As the problems in Texas occurred, Flannery held an emergency meeting last week, calling on staff to "fight for the company," according to The Wall Street Journal.

A note from Briefing.com said Culp's appointment was promising, adding that that he led "Danaher's transformation from an industrial manufacturer into a leading science and technology company."

Flannery, by contrast, "missed targets and was slow to enact change, creating doubts that an insider like him was capable of doing the heavy lifting needed to turnaround GE," Briefing added.

CFRA Research analyst Jim Corridore said it was probably positive that GE had tapped an outsider to lead the company instead of another company veteran like Flannery. 

But he cautioned the stock market's embrace of the shakeup may be "premature" because the "new CEO will face the same problems as the old."

"John Flannery was dealt a bad hand and he was doing his best to right the ship," Corridore said.

"They have to start to execute," Corridore added. "They need to give honest financial targets and hit these targets and not keep shifting goalposts.
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