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GE's new boss will break his silence

After nearly a month of silence, Larry Culp will finally face shareholders who are hoping the new General El...

Posted: Oct 29, 2018 8:12 PM
Updated: Oct 29, 2018 8:12 PM

After nearly a month of silence, Larry Culp will finally face shareholders who are hoping the new General Electric boss can restore the company to greatness.

Culp, who was named CEO on October 1, will face tough questions on Tuesday's earnings call about his vision for repairing the bleeding conglomerate.

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The bar has been set awfully high. The hiring of the well-respected former CEO of Danaher set off a flurry of buying in GE (GE) shares. And Culp's handsome pay package -- he stands to make more than $300 million if he can engineer a GE comeback in the next four years -- further added to the hype.

GE's actual results -- widely expected to be poor -- will probably be an afterthought as investors focus on Culp's turnaround plan. Will he drop hints about a dividend cut? Does he still want to spin off the health care division?

"Attention will likely be riveted on new-CEO Larry Culp's opening message on how he is triaging GE's hornet's nest of crises," RBC Capital markets analyst Deane Dray wrote to clients on Sunday.

Dray, who turned bullish on GE after Culp's hiring, cautioned investors: "There is no magic wand."

Years of bad decisions have left GE in disarray. Almost half a trillion dollars has vanished from GE's market value over the past 18 years. GE was kicked out of the Dow over the summer.

John Flannery was ousted as CEO after barely a year on the job, clearing the way for Culp to take the top job.

"GE's challenges may ultimately prove too great even for Larry Culp," John Inch, an analyst at Gordon Haskett Research Advisors, recently wrote to clients.

Power problems

Culp is inheriting a company slammed by a severe downturn in the power market. And that was before GE disclosed a glitch in one of its gas turbines that forced power plants to shut down.

The day Culp was announced as CEO, GE warned its 2018 profit will be "far short" of guidance due to weaker performance" at the power division.

GE and rival Siemens have been caught unprepared for the shift by power plants away from coal and natural gas in favor of wind and solar. GE announced plans last year to cut 12,000 power jobs.

Dividend on the chopping block?

GE's problems are so deep that investors are bracing for the company to further shrink its dividend or even suspend it altogether.

The dividend, which has been paid out for 119 consecutive years, was already halved last November. It was a painful decision given how many GE retirees and retail shareholders rely on the dividend.

But GE's debt may be too high and its earnings firepower too low to support the current dividend. Some shareholders might even cheer such a move.

"Given GE's grim cash backdrop, the bigger the cut the better, in our opinion," Inch wrote.

Tackling debt

Culp needs to reassure Wall Street that he will act swiftly to clean up GE's debt-riddled balance sheet. Standard & Poor's Global Ratings recently downgraded GE's credit rating.

Analysts are likely to question whether Culp will move to fix the balance sheet by selling billions of dollars of shares to the public. It would be GE's first equity raise since 2008, when legendary investor Warren Buffett came to the rescue during the financial crisis.

Inch said a $10 billion equity capital raise could be announced in early 2019.

Breaking up the breakup plans?

As a director, Culp signed off on his predecessor's June 2018 plan to further dismantle GE's empire by spinning off its profitable health care division and selling off the stake in oil and gas company Baker Hughes (BHGE).

But Culp's background in health care -- he pushed manufacturing company Danaher (DHR) into health care -- has led to speculation he may rethink the spinoff.

Culp may also announce an effort to cut GE's costs or even further shake up its C-Suite by picking his own lieutenants.

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