GE Ousts Flannery, Elevates Culp to CEO
We don't plan to materially alter our $15.70 fair value estimate after the surprisingly timed move.
In a management shakeup that surprised us as to timing but not as to selection, John Flannery has been fired from his post as General Electric's (GE) chief executive officer. Replacing him is former lead director Lawrence Culp. We don't plan to materially alter our $15.70 fair value estimate.
In our June 26 note, "GE Begins Its Great Unwind," we had speculated that if Flannery fell short, Culp could be a potential replacement. In this instance, Flannery's pedigree helping turn around GE Healthcare could not spare him. At 14 months, Flannery had a radically shorter tenure as CEO compared with predecessor Jeff Immelt's approximately 16 years. We did not foresee this. The board reportedly expressed frustration over the slow pace of change at GE Power, a sentiment we share. We believe the power market still faces severe secular threats from renewables and overcapacity, so we would expect far more cost-out actions. That said, whether it’s Culp or anyone else at the helm, GE will need time to turn the segment around, and we expect a long road to recovery. We do not foresee a recovery in revenue at GE Power until 2022 (from 2017 levels), and unlike management’s prior guidance, we model only a 3-point margin recovery at the segment profit level (to 8.6%, as opposed to the 10% management guided to). Until we hear reason to think otherwise, we are leaving our estimates in place.
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Joshua Aguilar does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.