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General Electric Replaces CEO John Flannery, Stock Rebounds 12%

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GE replaced CEO

On October 1, Boston-based industrial giant General Electric (GE) announced the appointment of H. Lawrence Culp as its chairman and CEO. The former head of Danaher (DHR) replaced John Flannery, whose 14-month tenure as GE’s CEO ended when the board of directors voted him out. GE’s board of directors also appointed Thomas Horton as the lead director of the company.

On January 1, Flannery began his tenure as GE’s chairman and CEO. Flannery’s departure wasn’t completely unexpected by the market, and the downtrend of GE’s stock price continued after his second action plan was released in June.

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GE to write off $23 billion in its GE Power business

On the same day, General Electric announced that it expects to book a non-cash goodwill impairment charge related to the GE Power business. GE’s current goodwill balance is ~$23.0 billion, which the company expects to comprise a substantial majority of this balance.

General Electric noted that it planned to finalize the impairment charge, which remains to be reviewed. GE is expected to provide more detail on this topic during its third-quarter earnings release on October 25.

GE’s stock price movement

After the news was released on October 1, General Electric (GE) stock spiked 12.0% to $12.63 in early trading. GE stock jumped 15.0% in premarket trading on that day.

On October 2, GE stock opened at $12.32, up marginally from its October 1 closing price of $12.09. The stock declined to $11.77 in the first hour of trading, and it subsequently recovered to $12.30. GE stock fell ~39.0% from January 1 to October 1, and it hit its one-year low last week. General Electric stock has fallen ~51.0% in the last year.

Other key updates

General Electric (GE) noted that with the exception of GE Power, its other segments appeared to be doing well. The company noted that GE Power’s subdued outlook could result in a “shortfall relative to 2018 guidance.” GE’s announcement addressed an ongoing concern of Wall Street analysts.

GE added that it wouldn’t be able to meet its previous 2018 guidance for free cash flow and adjusted EPS. GE had guided for the Industrial segment’s adjusted free cash flow to reach $6.0 billion, and it had guided for adjusted EPS of $1.00–$1.07 in 2018.

General Electric reaffirmed its plan to spin off its GE Healthcare segment, as well as its plan to exit its 62.5% interest in Baker Hughes, a GE Company (BHGE).

Investors bullish on GE stock can consider investing in the iShares Global Industrials ETF (EXI). GE makes up 2.31% of EXI’s portfolio. The ETF’s top holdings include Boeing (BA) with 4.5% weight, 3M Company (MMM) with 2.75% weight, and Honeywell International (HON) with 2.73% weight.

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