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We Like Culp as New CEO of GE

We expect the firm's core strategy will remain unchanged but do expect to changes in execution.

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Joshua Aguilar: While we were certainly not expecting the firing of GE's John Flannery this morning, one thing we're not surprised by is the selection of Larry Culp. Culp is the individual we had in mind to replace Flannery in case the board was not pleased with Flannery's progress, as we indicated in a June note. We think the board is sending a signal to the market that everyone will be held accountable, even the CEO. Our take is that the board was frustrated with Flannery's lack of progress with taking cost out in the power division. GE was consistently targeting a return to 10% segment profit margins for the segment, but segment profits margins have hovered at about 4.7% over the past two quarters and sustained similar levels during 2017.

We like the choice of Larry Culp. Under his leadership, Danaher's stock rose five-fold in Culp's 14 years at the helm. While we were previously cautiously optimistic during Flannery's 14 months in charge of GE, we like that the board is going in a new direction with fresh new ideas. We don't anticipate that Culp will radically depart from the focus on aviation, power, and renewable energy. This is the same board that ultimately approved of the end of June 8-k filing this year. 

Joshua Aguilar does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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