General Electric Co. said Friday it replaced its chief executive, after just over a year in the role, and investors were so ecstatic they shrugged off a profit warning and a plan to take an impairment charge of close to $23 billion.
The stock GE, -2.08% shot up 14% in very active premarket trade. That would put the stock on track for the biggest one-day gain since March 2009.
GE said it named H. Lawrence Culp as its chairman and chief executive, effective immediately, succeeding John Flannery. Culp previously served as CEO of Danaher Corp. from 2000 to 2014. the company also appointed Thomas Horton, who had been American Airlines CEO from 2011 to 2013, as lead director.
The industrial conglomerate also said it will miss previously provided guidance for free cash flow and earnings per share in 2018, because as a weak performance in its power business offset in-line performances in its other businesses. GE also said it will take a non-cash goodwill impairment charge of “substantially all” of GE Power’s current goodwill balance of about $23 billion.
There’s little wonder why investors reacted positively to the announcements, despite the profit warning and charge.
Flannery had taken over as CEO after Jeffrey Immelt stepped aside on Aug. 1, 2017, after 16 years in the role. Since then, GE’s stock at plummeted 55.6% through Friday, and closed at a nine-year low as recently as last Tuesday, while the Dow Jones Industrial Average DJIA, +0.07% rallied 20.5%.
FactSet, MarketWatch
The stock had also been booted from the venerable Dow industrials in June to snap a record 111-year run in the index. The company was also forced to cut its dividend in half and uncovered massive insurance-related losses under Flannery’s watch, as the company struggled to transform its focus in areas that continued to struggle.
Having such a short run is very uncharacteristic of a GE CEO, as before Flannery the company only had four CEOs in the previous 50 years. Before Immelt’s 16-year run, Jack Welch was CEO from 1981 to 2001, Reginald Jones ran the company from 1972 to 1981 and Fred Borch was CEO from 1967 to 1972.
One thing that may not have endeared Flannery to its board was his inability to get investors to buy into his plans to right the ship. After being asked why he believed the stock reacted negatively to his comments, the suggested because investors were disappointed in how “deliberate” he was, as many people seemed to wonder “what’s taking so long?”
Don’t miss: GE’s stock suffers worst day in 9 years after CEO John Flannery starts talking.
That may be why Culp used the word “urgency” as he introduced himself to the public.
“It is a privilege to be asked to lead this iconic company. We will be working very hard in the coming weeks to drive superior execution, and we will move with urgency,” Culp said. “We remain committed to strengthening the balance sheet including deleveraging.”