General Electric ousted its CEO, took a $23 billion charge and said it would fall short of profit forecasts this year, further signs that the century-old industrial conglomerate is struggling to turn around its vastly shrunken business.
H. Lawrence Culp Jr. will take over immediately as chairman and CEO from John Flannery, who had been on the job for just over a year. Flannery began a restructuring of GE in August 2017, when he replaced Jeffrey Immelt, whose efforts to create a higher-tech version of GE proved unsuccessful.
However, in Flannery's short time, GE's value has dipped below $100 billion and shares are down more than 35 percent this year, following a 45 percent decline in 2017.
The company was booted from the Dow Jones Industrial Average this summer and, last month, shares tumbled to a nine-year low after revealing a flaw in its marquee gas turbines, which caused the metal blades to weaken and forced the shutdown of a pair of power plants where they were in use.
GE warned Monday that it will miss its profit forecasts this year and it's taking a $23 billion charge related to its power business.
The 55-year-old Culp was CEO and president of Danaher Corp. from 2000 to 2014. During that time, Danaher's market capitalization and revenues grew five-fold. He's already a member of GE's board.
It's a track record that GE appears to need after a series of notable changes under Flannery failed to gain momentum immediately, although some analysts wonder whether Culp's history of accomplishments will be enough to reverse the direction of the company.
The challenges GE faces — including the power sector's cyclical, structural and operational challenges — are not easily or quickly fixable, but "GE should be commended for selecting a credible, seasoned GE outsider as chairman/CEO who is likely to more candidly and quickly identify how bad things may be and what needs to be done about it," said Gautam Khanna, an analyst at Cowen Inc., in a note to investors.
Investors will want Culp to "clean house, and fast," said Scott Davis, founding partner of Melius Research, in a research note where he compared GE's recent history to a slow but fatal train wreck.
"If I'm a GE employee today, I'm happy for the turnaround, but expectations are about to get a whole lot higher...GE employees will either step up or will be replaced," Davis said.
Flannery faced a titanic task in redirecting General Electric, which was founded in 1892 in Schenectady, New York.
Just six months after taking over as CEO, Flannery said the company would be forced to pay $15 billion to make up for the miscalculations of an insurance subsidiary. While Wall Street was aware of the issues at GE's North American Life & Health, the size of the hit caught many off guard.
Flannery on the same day said that GE might take the radical step of splitting up the main company's three main components — aviation, health care and power — into separate businesses.
In June GE said it would spin off its health-care business and sell its interest in Baker Hughes, a massive oil services company. It's been selling off assets and trying to sharpen its focus since the recession, when it's finance division was hammered.
"GE still has too much debt and plenty to fix, but at least we have an outsider with an accelerated mandate to fix it," Davis said.
Flannery vowed to give GE more of a high-tech and industrial focus by honing in on aviation, power and renewable energy — businesses with big growth potential. The shift is historic for a company that defined the phrase "household name."
GE traces its roots to Thomas Edison and the invention of the light bulb, and the company grew with the American economy. At the start of the global financial crisis in 2008, it was one of the nation's biggest lenders, its appliances were sold by the millions to homeowners around the world and it oversaw a multinational media powerhouse including NBC television.
But the economic crises revealed how unwieldy General Electric had become, with broad exposure damage during economic downturns.
Shares of General Electric Co., based in Boston, surged 11 percent in midday trading.
Massachusetts Gov. Charlie Baker, who helped lure GE to Boston from Connecticut in 2016 with incentives like state grants and property tax relief, said he's not too concerned about GE's latest travails. He noted that the company is still worth about $100 billion and has what he called a "huge footprint" in Massachusetts in health care, green technology, and renewable energy.
He said the state "did not write a big check to GE based on job projections or anything like that."