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GE chief’s bold moves are finally winning Wall Street approval

March 10, 2023 Updated Fri., March 10, 2023 at 12:26 p.m.

Larry Culp, chairman and chief executive officer of General Electric Co., listens during a March 2022 interview in New York.  (Christopher Goodney/Bloomberg)
Larry Culp, chairman and chief executive officer of General Electric Co., listens during a March 2022 interview in New York. (Christopher Goodney/Bloomberg)
By Ryan Beene Bloomberg

Larry Culp is finally having a good year.

General Electric had been in nearly constant turmoil since Culp took over as chief executive officer with a turnaround mandate in 2018.

He had set in motion a three-way split of the now-131-year-old company, ending the onetime titan’s conglomerate structure, something his predecessors had tried and failed to do, and something that GE’s industrial peers had mostly already done.

Last March, the company slashed his pay by almost $10 million after a rebuke by shareholders. Despite bold moves and sell-offs, shares throughout most of his tenure had failed to show lasting gains.

Wall Street is now listening.

On Thursday, company leaders laid out the next phase of Culp’s turnaround plan, sending shares to a five-year high and cementing the CEO’s vision of how a slimmed-down maker of jet engines, wind turbines and power equipment could expect to boost profits through the mid-decade and beyond.

The gains extended a steep run-up in GE’s stock this year to 40%, a surge that began to take hold after the spinoff of GE’s health-care division in early January.

Stronger sales and profits at GE Aerospace, improvements at GE’s energy-related units and a more nimble balance sheet “should be enough to enable the stock to outperform over the balance of 2023,” Barclays analyst Julian Mitchell said in a client note.

“There’s a lot fewer reasons to be concerned and a lot more reasons to be encouraged,” said William Blair analyst Nick Heymann. “There’s also a market looking to participate in well-run, more-focused industrial companies.”

When Culp became GE’s top executive, it was a monolith in trouble. Its huge gas power unit was reeling. Securities regulators were probing its books. The shares were marching downward and its balance sheet was crippled by a mountain of debt.

One crisis followed the next for much of his tenure. Two fatal crashes led to the 2019 grounding of Boeing’s 737 Max jets, for which a key GE joint-venture is the sole engine provider. The COVID-19 pandemic then hobbled its jet engine division and inflation snagged its overall production.

The company still faces head winds. GE Aerospace is fighting broad supply-chain problems while trying to support lofty aircraft production targets at Airbus and Boeing. The company’s onshore wind division also faces a potentially lengthy restructuring even as it targets profitability by 2024.

Culp has slashed more than $100 billion in debt, shed huge businesses and dismantled GE’s troubled financial services arm, while pushing an intense focus on so-called lean manufacturing practices to revitalize GE’s moribund operations.

It’s been a final repudiation of former CEO Jack Welch, the legendary boss who built GE into one of the most feared and respected companies - while planting the seeds for its ignominious fall from grace.

“The deleveraging had to be priority one, and we really had to drive an operational transformation just to drive results, let alone, in time, culture,” Culp told reporters Thursday, recalling his earliest objectives as CEO. “That operational turnaround is very much on its way.”

Some external factors are now also working in Culp’s favor. Scott Strazik, CEO of GE’s energy-related businesses known as GE Vernova, called the Biden administration’s Inflation Reduction Act a “game changer” for its business due to clean-energy subsidies that support wind and grid modernization.

Strong demand for air travel and new, more-efficient airplanes have also emboldened GE to forecast long-term financial targets that surpassed the expectations of some analysts.

The company also expects its power division - a key source of past trouble - to achieve double-digit profit margins in 2024 versus 7.5% last year. Strazik said the business is poised to generate “substantial” free cash flow “for a very long time.”

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