GE Ousts CEO Flannery, Writes Down $23 Billion in Goodwill

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In a press release Monday morning, General Electric Co. (NYSE: GE) named lead director H. Lawrence Culp as CEO and board chair, replacing John Flannery, who has been CEO for just over a year. Flannery, who spent 30 years at GE, before being appointed CEO, got a single line in the press announcement from new lead director Thomas Horton: “On behalf of the board, I thank John for his significant contributions and long service to GE.” Here’s your hat, what’s your hurry?

The company’s recent woes in the Power division have made GE’s troubles worse, and one could argue that the division’s struggles over the past few years were Flannery’s albatross, hung around his neck by the Jeff Immelt, the former CEO that Flannery replaced.

In any event, if the change at the top is good news (and investors seem to think it is), GE had some bad news:

While GE’s businesses other than Power are generally performing consistently with previous guidance, due to weaker performance in the GE Power business, the Company will fall short of previously indicated guidance for free cash flow and EPS for 2018. In addition, GE expects to take a non-cash goodwill impairment charge related to the GE Power business.

GE reports third-quarter results on October 25 and has promised “additional commentary” on the goodwill write-down at that time. For now, the company said it is writing down “substantially all” the Power division’s current goodwill balance of around $23 billion. That makes the balance sheet look worse, but represents no cash loss. At the end of the June quarter, GE reported a total of $81.5 billion in goodwill, just under a quarter of all its assets.

New CEO Culp said:

GE remains a fundamentally strong company with great businesses and tremendous talent. It is a privilege to be asked to lead this iconic company. We will be working very hard in the coming weeks to drive superior execution, and we will move with urgency. We remain committed to strengthening the balance sheet including deleveraging. Tom and I will work with our board colleagues on opportunities for continued board renewal. We have a lot of work ahead of us to unlock the value of GE.

Culp, 55, was CEO and president of industrial manufacturer Danaher Industries from 2000 to 2014. During his time as CEO, the company’s share price rose fivefold, according to today’s press release. Lead director Horton led American Airlines from 2011 through 2014.

GE’s stock traded up more than 14% about an hour before Monday’s opening bell at $12.88. The stock’s 52-week range is $11.21 to $24.89, and the consensus price target is $16.54. The company’s forward price-to-earnings ratio is 11.18.