General Electric Co. plans to cut 12,000 jobs, or almost one-fifth of the power division’s global workforce, underscoring GE’s bad bet on an old-school industry as natural gas loses favor and renewable energy gains.
Rick Clough of Climate Changed (via Bloomberg) had the story:
The company’s $10 billion deal to buy Alstom SA’s assets two years ago has compounded the pain.
“They clearly misjudged the shift that’s going on in the market,” said Jeff Sprague, an analyst with Vertical Research Partners. “It’s possible that there’s some semblance of stabilization, but there’s not really a good case for the business to go back to its former strength.”
The world’s largest maker of gas turbines says it needs to become leaner as its biggest business grapples with slowing demand. John Flannery, GE’s new chief executive officer, aims to cut $1 billion of costs from the power division next year as part of a sweeping plan to reshape the manufacturing icon and reverse a stock slump that’s the worst in the Dow Jones Industrial Average this year.
GE on Thursday pointed to the growth of renewables as a factor in its decision to cut jobs. GE Power CEO Russell Stokes called the move “painful but necessary” to adapt to the market. The company isn’t alone: Siemens AG announced a plan last month to eliminate 6,900 positions and close factories amid a sharp drop in orders for power-plant equipment.
Tiffany Hsu and Clifford Krauss of The New York Times report that about half of the jobs being cut are in Europe:
The G.E. employees losing their jobs work in production and professional roles. They will notified about whether they are being let go over the next 18 months. About half are based in Europe.
G.E. said the cuts would help it save $1 billion as it moves to reduce costs by $3.5 billion this year and next across its vast businesses.
“This decision was painful but necessary for GE Power to respond to the disruption in the power market,” Russell Stokes, the head of the company’s power division, said in a statement. “We expect market challenges to continue, but this plan will position us for 2019 and beyond.”
Although G.E. estimates that its equipment generates more than 30 percent of the world’s electricity, analysts at Stifel wrote in a note to clients on Thursday that a streamlining of the power division was “long overdue” and an “obvious next step” to improve the company’s cash flow and profit margins.
Chris Isidore of CNNMoney.com reported that GE is making other drastic changes:
Last month, it slashed its cherished stock dividend in half, only the second cut GE has made in its payment to shareholders since the Great Depression.
There’s even talk that the Dow could drop GE. That storied barometer of the stock market has included GE for 110 years, longer than any other company.
But GE is cutting jobs at a time when the U.S. labor market is strong. The unemployment rate is 4.1%, the lowest in 17 years. Layoff announcements this year are at a 20-year low, the firm Challenger, Gray and Christmas reported Thursday.
GE stock moved only slightly higher in premarket trading on Thursday after the cuts were announced.
