New leadership boosts GE shares
General Electric (GE) replaced CEO John Flannery on Monday and said it would take a near $23bn charge to write off goodwill in its power division, primarily from a large acquisition it made in 2015.
The firm also said it would fall short of its guidance for free cash flow and earnings per share for 2018 due to weakness in its power business, which analysts had expected.
GE shares rose 15% before the opening bell. They had dropped more than half since Flannery became CEO in August 2017. With a market capitalisation below $100bn as of Friday, GE was worth less than a third of its value in 2007.
GE’s board unanimously picked H Lawrence Culp Jr, 55, as its new CEO, a seasoned executive known for transforming Washington, DC-based conglomerate Danaher Corporation. He was named to GE’s board in February. Culp was CEO of Danaher from 2000 to 2014.
Flannery’s departure underscores the slow pace of his efforts to turn around GE. Despite cutting jobs and shedding businesses, GE’s results continued to deteriorate, mainly due to problems at its power plant division.
The division’s outlook appeared to worsen in September when GE said several power plants equipped with its newest turbines had to be shut down because of a part failure. That comes after the power business posted a $10bn loss in 2017.
Changing CEOs “won’t fix short-term problems at power but Larry [Culp], as an outsider, will be able to make the difficult decisions on cost,” Melius Research analyst Scott Davis said in New York.
GE said the power division’s goodwill balance is about $23bn and the impairment charge would eliminate most of it.
The noncash charge primarily relates to $10.3bn GE acquisition Alstom’s power assets in 2015, GE said.