Can GE Be Revived With New CEO H. Lawrence Culp?

General Electric’s new CEO H. Lawrence Culp, Jr. is the “production nerd who could just transform GE.”

Culp will use the same principles he used to turn around Danaher Corp.: the Toyota Production System, or TPS, according to MarketWatch contributor Douglas Lavin. TPS is a system that attacks waste and exposes employees to end-customer demand, so production is pulled by demand, not pushed by capability. For Culp, it became a fundamental approach to everything at Danaher: HR, accounts receivable, even the R&D process.

“If Culp’s devotion to TPS and track record is a guide, GE will soon deliver fundamental improvements in speed, productivity, and in designing features and products that customers want,” Lavin writes. “That sounds like good jobs and a return to what GE used to be famous for: profitability, growth and a good share price.”

If Culp can apply those principles to GE, there are clearly opportunities to significantly improve the venerable company’s performance, according to The Motley Fool contributor Lee Samaha.

“Given the overcapacity in the gas turbine industry, GE obviously needs to downsize its operations; that could result in significantly reduced expenditures,” Samaha writes. “Weak demand for gas turbines may threaten equipment sales, but GE can improve margins in its power services operation.”

GE is already in process of reducing unit production costs on LEAP aircraft engines at CFM International — a joint venture between GE and Safran, he writes.

GE has some very valuable franchises, including aviation, healthcare, renewable energy and power, once Culp decides how best to fix problems with that line of business, according to Seeking Alpha contributor Bill Zettler. But “the secret sauce to future profits” are GE’s software assets.

“Currently, they have what I consider to be a very valuable manufacturing/industrial software product called Predix,” Zettler writes. “Predix would be a perfect fit for companies like Cisco, Amazon or Microsoft looking to get a foothold in IoT. There is a lot of money to be made with Predix, et al over the next 5 to 10 years. Software has margins GE can only dream about.”

In November, Culp told CNBC’s David Faber on “Squawk on the Street” that there’s an “urgency” to reduce the company’s leverage via asset sales.

“We have no higher priority right now than bringing those leverage levels down,” Culp said.

Still, he won’t rush the process, to ensure GE gets the best deal. Three possible ways to free up cash: a possible IPO for GE’s “tremendous” health-care business, the sale of its transportation business, and the coming exit of the Baker Hughes oil field services business.

“Aviation is our crown jewel,” Culp said. While GE believes there are “various options” for how to make use of the strong business, selling part or all of the business is “not high on” GE’s list of options for aviation.

Questions about GE’s liquidity were “put to rest” when the company received $20 billion in cash from asset sales, Culp said. Moreover, GE has used only $2 billion of “$40 billion of bank lines.”

“That gives us a foundation to really talk to the leverage,” he said.

Culp joined GE as an independent director in April 2018, was elected lead director in June 2018, and chairman and CEO of GE in September of 2018. He served as president and CEO of Danaher Corp. from 2001 to 2014, during which time the company increased revenues and its market capitalization fivefold to $20 billion and $50 billion, respectively. Investors and analysts alike consistently ranked him as one of the top CEOs in annual Institutional Investor surveys, GE writes on its website. Harvard Business Review named Culp one of the Top 50 CEOs in the world.

Culp joined Danaher in 1990 at Veeder-Root, becoming president in 1993. He was appointed group executive and corporate officer in 1995, with responsibility for Danaher’s environmental and electronic test and measurement platforms. During this time, Culp also served as president of Fluke and Fluke Networks. In 1999, he became executive vice president, in 2001 chief operating officer, and in 2001 president and CEO.

He’s No. 14 on Chief Executive and RHR International’s CEO1000 Tracker, a ranking of the top 1,000 public/private companies.

H. Lawrence Culp, Chairman & CEO, General Electric

Headquarters: Boston, MA

Age: 55

Education: Washington College (B.A.), Harvard Business School (MBA)

First joined company: 2018

Positions prior to joining GE: Chief Executive Officer and President of Danaher Corporation (2001-2014)

Named CEO: 2018