GE embarks on new era as Flannery takes over as CEO, says he heard investors 'loud and clear'

Key Points
  • GE's new CEO, John Flannery, officially took the helm Tuesday.
  • He takes over the company at a time when its stock has been struggling. The shares are down 19 percent this year.
  • Flannery has been meeting with investors, and said he heard them "loud and clear."
John Flannery, GE
Christopher Goodney | Bloomberg | Getty Images

Tuesday marks the official changing of the guard at General Electric, ushering in a new era of leadership after a 16-year tenure by Jeff Immelt. His successor, John Flannery, 55, officially takes the helm as chief executive, before additionally adding chairman to his title next year.

On "Day 1," Flannery, a 30-year GE veteran who most recently turned around the blue chip's health-care business, sent an internal letter to the company's nearly 300,000 employees that focused on running the company well.

"I have a relentless focus on three things: customers, team, and execution/accountability," the letter said. "When we bring those three things together we will create 'our GE'."

Flannery is encouraging employees in every role and function to always have customers as the "guiding principle." He is also outlining expectations for a great team, including transparency, candor and an ability to debate real issues, adding that when those aren't discussed, "we are an accident waiting to happen."

But it's the third topic — execution and accountability — Wall Street is sure to key in on.

The new CEO said that over the past month he met with 100 investors face-to-face to get their views on the company as he begins a deep dive into GE's different businesses, a review expected to culminate in updated guidance come November.

"Investors want us to win — they know that GE has world class businesses and technology with unprecedented global reach and scale. They understand the importance of GE in the world but they think we are underperforming. They are expecting better execution on cash, margins and there is a focus on taking cost out," he wrote.

"They understand how massive the portfolio transformation has been since 2001, but now we need an intense focus on running the company well. They also expect more accountability internally and externally and asked that we find a way to simplify our metrics."

"I heard them loud and clear," he said.

That should at least sound promising to investors. General Electric's stock has tumbled 19 percent this year, even as the Dow Jones industrial average has climbed to records, posting gains of 11 percent for the year so far. Industrial peers United Technologies and Honeywell have also outperformed it.

"The company is still in transition and this was going to be a three-year transition. We're in year two, and 2018 was the first expectation to get to normalized earnings post-GE Capital and other divestitures," said Deane Dray, a managing director at RBC Capital Markets.

In other words, Flannery takes the helm at a crucial time for the company, which was founded 125 years ago by Thomas Edison, as it continues to shift into a pure-play industrial conglomerate with a growing focus on tech.

Under Immelt, whose tenure included the 9/11 terrorist attacks just days after becoming CEO, GE shed hundreds of billions of dollars in assets including the lion's share of its financial business GE Capital, its stake in NBC Universal (CNBC's parent company) and the namesake appliance business. Even its iconic lighting business is up for grabs.

Meanwhile, the hard-hit oil and gas unit recently merged with Baker Hughes, Alstom's power business joined the portfolio and a big bet on the industrial internet of things is just starting to financially materialize.

But it's been slower than investors would like, calling into question long-term forecasts and concern over the surety of the stock dividend. Second-quarter results embodied that: despite better-than-expected earnings and sales and a rebound in cash flow, the company warned profit could be at the low end of the range in reaffirmed 2017 earnings guidance. And in May, just days before the surprise announcement of his retirement, Immelt wavered on the longstanding goal of the company to post earnings of $2 per share in 2018, a forecast Wall Street increasingly doesn't expect the company to meet.

Flannery has said he won't address that until November after his review of the company's businesses is complete. But analysts have already reset market expectations, even as they have high hopes for the new chief.

"The average tenure for a GE CEO has historically been about 15 years, so it's unlikely he has that term, in which case, he won't necessarily be a big empire builder but rather, an organizational optimizer who maybe makes some big changes in the portfolio," said Dray.

Time will tell. Meantime, Flannery is urging employees to rally around his three tenets. "Let's be amazing for our customers. Let's be the best team players in the world. Let's execute and produce results we can be proud of. Let's win."