General Electric Co (GE) ousted its CEO, took a US$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 is to take over immediately as chairman and CEO from John Flannery, who had been on the job for just more than a year.
Flannery began a restructuring of GE in August last year, 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 US$100 billion and shares are down more than 35 percent this year, following a 45 percent decline last year.
The company was booted from the Dow Jones Industrial Average this summer and shares last month 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 on Monday said it would miss its profit forecasts this year and it is taking a US$23 billion charge related to its power business.
Culp, 55, was CEO and president of Danaher Corp from 2000 to 2014. During that time, Danaher’s market capitalization and revenue grew fivefold. He is already a member of GE’s board.
It is a track record that GE appears to need after a series of notable changes under Flannery failed to gain immediate momentum.
Flannery faced a titanic task in redirecting GE, 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 US$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, healthcare and power — into separate businesses.
In June, GE said it would spin off its healthcare business and sell its interest in Baker Hughes Inc, a massive oil services company. It has been selling off assets and trying to sharpen its focus since the recession, when its 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,” Melius Research founding partner Scott Davis said in a note to investors in which 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.”
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 US 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.
However, economic crises revealed how unwieldy GE had become, with broad exposure damage during economic downturns.
GE shares surged 11 percent in midday trading.
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