General Electric replaces CEO, pushing up its shares

Former General Electric chairman and CEO John Flannery

Richard Drew Associated Press. Former General Electric chairman and CEO John Flannery

Equipment and industrial analyst Stephen Tusa reiterated both his underweight rating and $10 price target on GE shares Monday, telling clients that investors may be wrong to celebrate the switch given the suspicious timing.

To pay off debt and jump-start the stock, Flannery announced plans to sell many of GE's businesses, including its century-old railroad division, Thomas Edison's light-bulb unit, Baker Hughes and the health-care unit that makes MRI machines.

General Electric Chairman & CEO John Flannery is interviewed on the floor of the New York Stock Exchange in June.

Mr Culp indicated that he will tackle the company's problems aggressively. Culp, the former CEO of industrial manufacturing company Danaher, joined the GE board in February.

Flannery was enlisted last summer amid deep disillusionment with former Chief Executive Jeffrey Immelt who presided over major GE acquisitions in power and oil services that became albatrosses when those markets shifted.

In the press release, Mr. Culp said, "GE remains a fundamentally strong company with great businesses and tremendous talent".

The company said because of weaker performance in the GE Power business, GE would fall short of previous profit guidance for this year. That comes after the power business posted a US$10-billion loss a year ago. The deal expanded GE's exposure to gas, coal and nuclear power.

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"The board is signaling to the market that we are not going to give anyone free reign like we did with Jeff Immelt", said Morningstar analyst Joshua Aguilar.

Changing CEOs "won't fix short-term problems at power but Larry, as an outsider, will be able to make the hard decisions on cost", said Scott Davis, an analyst at Melius Research in NY.

Growth in the company's newly reinvented energy storage business, renewable generation and digital grid services has not reached the point of substituting for the conventional power revenues. Its close touched a nine-year low "as recently as last Tuesday, while the Dow Jones Industrial Average has rallied 20.5 percent", noted the market news site.

"Investors grew impatient with the lack of improvement and with the sheer scale of the problems uncovered", CRA Research analyst Jim Corridore wrote to clients.

"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", Davis said. The company said on Monday that it would absorb a goodwill charge of up to $US23 billion for the power segment.

GE also said it will take an impairment charge constituting almost all of the $23 billion of goodwill associated with its power segment, which has struggled with a downturn in the gas-turbine market.

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