General Electric abruptly removed John Flannery as chairman and CEO on Monday and installed former Danaher CEO Lawrence Culp as his successor.
GE also said it will take a $23 billion noncash charge for its struggling power business. The industrial conglomerate said it “will fall short of previously indicated guidance for free cash flow and EPS for 2018,” as many on Wall Street had warned.
“GE Power’s current goodwill balance is approximately $23 billion and the goodwill impairment charge is likely to constitute substantially all of this balance,” GE said. “The impairment charge is not yet finalized and remains subject to review.”
Culp was named to the GE board in April.
GE shares surged as much as 16 percent to $13.10 in premarket trading Monday on the news.
Last week, the stock posted one of its worst weeks of the year, down 7 percent and hitting a nine-year low of $11.21.
Concern about a recent gas turbine failure in Texas has hung over GE. Its board of directors met Wednesday to discuss how widespread the issue is, according to The Wall Street Journal. Flannery reportedly reassured employees that the company’s engineers have found a solution to the flaw and told staff to “fight for the company,” saying media reports overplayed the failure of a turbine blade at the Colorado Bend power plant in Wharton County, Texas.
But the board had grown frustrated with the slow pace of change under Flannery, sources familiar with the issue told CNBC. His removal was not driven by the turbine issue, but was an execution issue, the sources said.
Flannery was appointed August 2017, taking the helm from Jeff Immelt as the conglomerate’s stock fell steadily. But GE’s value has continued to erode, setting new lows as investors remain unconvinced by Flannery’s turnaround plan and its stagnant power business has hit new roadblocks, such as the Texas turbine failure.
GE’s business selling turbines to gas and coal-fired power plants has suffered in recent years as utilities ramp up construction of solar and wind farms. GE has also acknowledged that it misread the market, leaving it with large inventories of unsold equipment. In addition, the sales slowdown hurts the company’s ability to make money by servicing the equipment.
Previously, the company endeavored to shrink operational costs in the troubled power unit by about $1 billion, address operational problems and adjust the size of the business based on the needs of the market.
GE was worth nearly $600 billion in August 2000 — a time when it was one of the most valuable companies in history. Its valuation slipped over the first decade of Immelt’s tenure as CEO before taking a sharp hit during the 2009 financial crisis. But GE’s value recovered to precrisis levels nearly as quickly, reaching as much as $300 billion by December 2015. Yet shareholder confidence began crumbling sharply in January 2017, at about $31 per share.
Last June, GE was kicked out of the Dow Jones Industrial Average. It had been the longest-serving component of the blue chip index — 111 years.