URL https://www.reuters.com/article/us-ge-ceo/general-electric-replaces-ceo-and-shares-soar-idUSKCN1MB2CY

DATE/ AUTHOR 2018-10-01 22:42:26+00:00	AUTHORS: Alwyn Scott, Min Read

H General Electric replaces CEO with outsider; shares soar

S1 (Reuters) - General Electric Co (GE.N) ousted Chief Executive Officer John Flannery in a surprise move on Monday, replacing him with outsider and board member Larry Culp, and said it would take a roughly $23 billion charge to write off goodwill in its power division, primarily from a large 2015 acquisition.

S2 The struggling energy, health and transportation conglomerate also said it would fall short of its forecast for free cash flow and earnings per share for 2018 due to weakness in its power business, something analysts had expected.

S3 GE shares jumped 7 percent to close at $12.09 as investors bet that Culp could re-energize the GE brand and more quickly transform its portfolio.
S4 The stock was the top percentage gainer on the S&P 500 .SPX.
S5 The shares had more than halved since Flannery, a three-decade GE veteran, became CEO in August 2017 to replace Jeff Immelt, who had led GE since 2001.
S6 With a market capitalization below $100 billion as of Friday, GE was worth less than a fifth of its peak value a generation ago.

S7 GE Power’s falling profits last year forced GE to slash its overall profit outlook and cut its dividend for only the second time since the Great Depression.

S8 GE’s board, meeting in the last few days, unanimously picked Culp as its new CEO.
S9 Culp, 55, who was named to GE’s board in February, was CEO of industrial equipment supplier Danaher Corp (DHR.N) from 2000 to 2014, helping grow the company into a broader conglomerate through a series of acquisitions, while also growing earnings.

S10 Related Coverage GE's long share price decline claims another casualty

S11 Some analysts said that GE Power likely missed financial targets for the third quarter, contributing to Flannery’s ouster.
S12 GE, scheduled to report results on Oct. 25, declined to comment.

S13 The broad strategies are likely to be similar because the plan laid out by Flannery was made in conjunction with heavy involvement from the board, which included Culp, said Gabelli & Co analyst Justin Bergner.

S14 SHADOW OF ITS FORMER SELF

S15 GE’s board was unhappy with the pace of the company’s turnaround under Flannery, and when the size of the writedown in the power plant division, which makes electric generating equipment, became apparent, the board was persuaded to seek a new CEO, according to a person familiar with the matter who requested anonymity to discuss confidential deliberations.

S16 However, GE will not be changing its announced breakup plan, which calls for spinning off healthcare and shedding its stake in oil services company Baker Hughes (BHGE.N), the source added.

S17 FILE PHOTO: General Electric CEO John Flannery is seen at the company’s office in New York City, U.S., June 26, 2018.
S18 REUTERS/Alwyn Scott

S19 Culp indicated that he will tackle the company’s problems aggressively.
S20 “We will move with urgency.
S21 ... We have a lot of work ahead of us to unlock the value of GE,” he said in a statement.

S22 The troubles in the power plant unit have been intensifying, as Reuters reported in July, with the news that one of its most valuable clients, Saudi Arabia, was lining up competitors to bid against GE for lucrative power plant work.

S23 GE doubled down on fossil fuels in 2015 under Immelt with the $10.3 billion purchase of French group Alstom SA’s (ALSO.PA) power business.
S24 The deal expanded GE’s exposure to gas, coal and nuclear power.
S25 It added employees, dozens of factories and service centers at a time when GE was trying to cut costs.

S26 “The board is signaling to the market that we are not going to give anyone free reign like we did with Jeff Immelt,” said Morningstar analyst Joshua Aguilar.

S27 The power division’s outlook appeared to worsen last month when GE said several power plants equipped with its newest turbines had to be shut down because of a part failure.

S28 Changing CEOs “won’t fix short-term problems at power, but Larry, as an outsider, will be able to make the difficult decisions on cost,” said Scott Davis, an analyst at Melius Research in New York.
S29 “GE is bloated and its culture is destroyed.”

S30 Lawrence Culp, chairman and CEO of General Electric (GE) is pictured in this undated handout photo obtained by Reuters October 1, 2018.
S31 PRNewsFoto/T.
S32 Rowe Price Group, Inc./Handout via REUTERS

S33 Davis said the stock price has probably already adjusted to expectations of no contribution from power.

S34 A slimmed down General Electric - a 126-year-old conglomerate that was once the most valuable U.S. corporation and a global symbol of American business power — will focus on jet engines, power plants and renewable energy.

S35 In June, GE lost its spot in the blue-chip Dow Jones Industrial Average .DJI after over a century.

S36 “Investors grew impatient with the lack of improvement and with the sheer scale of the problems uncovered.
S37 However, these problems were not created under [Flannery’s] tenure,” CFRA analyst Jim Corridore said in a note.
S38 “The market seems to be welcoming a change in leadership but the new CEO will be facing many of the same problems.”

S39 GE said the power division’s goodwill balance is about $23 billion and the impairment charge would eliminate most of it.
S40 The non-cash charge primarily relates to GE’s acquisition of power assets from Alstom in 2015, GE said.

S41 GE’s long stock slide means the once-largest U.S. industrial company is now only sixth in terms of market capitalization, behind Boeing Co (BA.N), 3M Co (MMM.N), Honeywell International Inc (HON.N), United Technologies Corp (UTX.N) and others.

S42 (For grapchic on GE stock performance, click reut.rs/2Isclc1)(For graphic on the largest U.S. industrial companies, click tmsnrt.rs/2IA3DJ7)

