(Reuters) – General Electric Co (GE.N) replaced Chief Executive Officer John Flannery on Monday and said it would take a roughly $23 billion charge to write off goodwill in its power division, primarily from a large acquisition it made in 2015.
FILE PHOTO: General Electric CEO John Flannery is seen at the company’s office in New York City, U.S., June 26, 2018. REUTERS/Alwyn Scott
The company 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, something analysts had expected.
GE shares rose 15 percent before the opening bell. They had dropped more than half since Flannery became CEO in August 2017. With a market capitalization below $100 billion as of Friday, GE was worth less than a third of its value in 2007.
GE’s board, meeting in the last few days, unanimously picked as its new CEO H. Lawrence Culp Jr, a seasoned executive known for transforming Washington, D.C.-based conglomerate Danaher Corp (DHR.N), who was named to GE’s board in February. Culp, 55, 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, which makes electric generating equipment.
The 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. That comes after the power business posted a $10 billion loss last year.
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,” said Scott Davis, an analyst at Melius Research in New York. “GE is bloated and its culture is destroyed. Larry is a culture guy. He’s a lean manufacturing guy.”
Davis said GE’s power business is fixable but suffered from “a lot of excess capacity and bad execution decisions” and the stock price has probably already adjusted to expectations of no contribution from power.
GE said the power division’s goodwill balance is about $23 billion and the impairment charge would eliminate most of it. The non-cash charge primarily relates to GE’s $10.3-billion acquisition of power assets from French company Alstom SA (ALSO.PA) in 2015, GE said. That deal gave GE more exposure to older coal plant technology at a time when coal plants were being shut down as too costly.
Additional reporting by Arunima Banerjee and Sweta Singh in Bengaluru; Editing by Saumyadeb Chakrabarty and Nick Zieminski