In an announcement released early Thursday morning, General Electric Co. (NYSE: GE) said it will slash global headcount in its Power segment by about 12,000, including both professional and production employees.
The announcement comes on the heels of Wednesday’s report that GE would cut some 4,500 European positions in the power business it acquired in 2015 with France’s Alstom. Whether today’s announcement includes those this 4,500 is not clear. GE’s global headcount is approximately 300,000.
The job cuts are part of GE’s efforts to reduce its overall costs by $3.5 billion in 2017 and 2018. Adding 12,000 jobs to cuts already made in 2017 “will position GE Power” to reach a target of $1 billion in cost reductions next year.
GE’s Power division, which makes the massive turbines used to generate electricity in hydropower and fossil-fuel plans, is the company’s largest segment by revenue and it has been performing poorly. Power segment revenues fell 4% year over year in the third quarter to $8.68 billion and profits tumbled a staggering 51%. The company had a serious problem here, and new CEO John Flannery knew it.
GE Power’s president and CEO, Russell Stokes, said:
This decision was painful but necessary for GE Power to respond to the disruption in the power market, which is driving significantly lower volumes in products and services. Power will remain a work in progress in 2018. We expect market challenges to continue, but this plan will position us for 2019 and beyond.
At its core GE Power is a strong business. We generate more than 30 percent of the world’s electricity and have equipped 90 percent of transmission utilities worldwide. Our backlog is $99 billion and we have a substantial global installed base. This plan will make us simpler and stronger so we can drive more value for our customers and investors.
The “plan” Stokes refers to seems to be nothing more than slash and burn. GE has already said it plans to sell off some $20 billion in assets in addition to the job cuts.
GE is not the only industrial giant facing challenges in its Power business. Siemens said last month that it is cutting about 6,900 jobs, mostly in its power and gas business. Both companies face growing competitive pressures from renewables and the market for their huge turbines has reversed into an oversupply situation.
When Moody’s Investor Services cut GE’s rating on senior unsecured debt last month, the ratings firm had this to say:
Over the last several years, GE pursued an aggressive financial policy that contributed to the weakening of its credit profile. The company used close to $25 billion of proceeds from asset disposals and dividends from GE Capital for share repurchases in 2016 and 2017, funded more than $10 billion of acquisitions with debt, and paid a dividend that increasingly outweighed GE’s industrial free cash flows as GE Capital was downsized and challenges mounted in Oil & Gas, Transportation and Power.
Those mistakes were clearly laid at the feet of former CEO Jeff Immelt, and Moody’s was giving Flannery a hint of what he needed to do to sort things out. The dividend has been halved and the company’s acquisitiveness has been replaced by a fire-sale mentality. Cutting jobs was inevitable, and making those cuts late in the calendar year seems to be the rule among U.S. firms.
GE’s shares have added about 0.5% in Thursday’s premarket session to trade at $17.75, in a 52-week range of $17.46 to $32.38. The stock’s 12-month consensus price target is $22.64. GE stock is by far the worst performing stock among the 30 equities that comprise the Dow Jones Industrial Average, down some 44% for the year to date.