GE an­nounces plans to cut 12,000 as power-mar­ket dip forces re­trench­ment

The Buffalo News - - MONEY & MARKETS - By Richard Clough BLOOMBERG NEWS

Gen­eral Elec­tric plans to cut 12,000 jobs in its power busi­ness as the com­pany’s new lead­ers look to slash costs and sta­bi­lize the be­lea­guered man­u­fac­turer.

The re­duc­tions, ac­count­ing for about 18 per­cent of GE Power’s work­force, in­clude both pro­fes­sional and pro­duc­tion em­ploy­ees, the com­pany said Thurs­day in a state­ment. The world’s largest maker of gas tur­bines said the unit needs to be­come leaner as cus­tomers turn away from fos­sil fuel-based en­ergy sources.

The move adds to a flurry of cost cuts by Chief Ex­ec­u­tive Of­fi­cer John Flan­nery, who has al­ready scaled back use of cor­po­rate jets and de­layed work on a new Bos­ton head­quar­ters since tak­ing the reins in Au­gust. GE said last month it would pare the quar­terly div­i­dend and sell some busi­nesses. It’s also re­assess­ing spend­ing in ar­eas such as re­search and devel­op­ment.

“It’s a start,” said Ni­cholas Hey­mann, an an­a­lyst with Wil­liam Blair & Co., adding that GE still needs to make op­er­a­tional changes in ad­di­tion to job cuts. “It’s one thing to put the tourni­quet on, and it’s an­other to re­di­rect and cre­ate the path for­ward.”

Trim­ming the work­force will help GE achieve its goal of slic­ing $1 bil­lion of struc­tural costs next year in the power unit. That plan is part of a larger ef­fort to cut $3.5 bil­lion of ex­penses across the com­pany through 2018.

“This de­ci­sion was painful but nec­es­sary for GE Power to re­spond to the dis­rup­tion in the power mar­ket,” di­vi­sion chief Rus­sell Stokes said in the state­ment. “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.”

De­mand is flag­ging for GE’s pow­er­gen­er­a­tion equip­ment be­cause of over­ca­pac­ity, lower uti­liza­tion, fewer out­ages and the growth in re­new­able en­ergy, said Stifel Fi­nan­cial Corp. an­a­lyst Robert McCarthy.

“Given the chal­lenges within the global power mar­ket, to­day’s an­nounce­ment rep­re­sents an ob­vi­ous next step in re­duc­ing head­count and foot­print in order to im­prove mar­gins and cash flow within the strug­gling busi­ness,” McCarthy said in a note to clients. “Tra­di­tional power mar­kets in­clud­ing gas and coal have soft­ened and vol­umes are down sig­nif­i­cantly.”

GE had about 300,000 total em­ploy­ees at the end of last year. Power was the com­pany’s big­gest di­vi­sion, with sales last year of $26.8 bil­lion. The total would have been $36.8 bil­lion af­ter ac­count­ing for a re­or­ga­ni­za­tion this year in which GE added some en­ergy busi­nesses to the unit.

While GE didn’t spec­ify where the job cuts will come, the bulk will be out­side the U.S., ac­cord­ing to a per­son fa­mil­iar with the mat­ter who asked not to be iden­ti­fied dis­cussing the de­tails. Po­si­tions in France won’t be af­fected due to stip­u­la­tions in an agree­ment when GE bought Al­stom’s en­ergy busi­ness in 2015, the per­son said.

Re­new­able forms of en­ergy such as wind and so­lar are likely to grab a big­ger share of the mar­ket in the com­ing decades, the In­ter­na­tional En­ergy Agency said last month. Re­new­ables will reap about twothirds of $11.3 tril­lion in in­vest­ment likely to flow to power plants over the pe­riod, the IEA said.

GE has been hit hard by weak­en­ing de­mand for new gas-fired elec­tric­ity gen­er­a­tors as the costs of re­new­ables slide. Com­peti­tors such as Siemens AG are con­tend­ing with sim­i­lar pres­sures. The Mu­nich-based com­pany last month an­nounced a plan to elim­i­nate about 6,900 po­si­tions world­wide and close fac­to­ries.

In ad­di­tion to the in­dus­try shift, GE Power has “ex­ac­er­bated the mar­ket sit­u­a­tion with some re­ally poor ex­e­cu­tion,” Flan­nery told in­vestors last month.

The power unit ex­panded con­sid­er­ably with the $10 bil­lion Al­stom ac­qui­si­tion, but the drawn-out deal has turned into a drag. In­tended to broaden the prod­uct lineup with steam-tur­bine tech­nol­ogy, the tie-up pushed GE Power’s work­force to 65,000 at a time when the mar­ket was slow­ing.

On­line mes­sage boards for GE em­ploy­ees were ac­tive in re­cent weeks as work­ers dis­cussed lay­off no­tices go­ing out in GE Power man­u­fac­tur­ing lo­ca­tions such as Greenville, S.C., and Sch­enec­tady. GE also met with union rep­re­sen­ta­tives in Europe this week to dis­cuss cut­backs there.

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Gen­eral Elec­tric plans to cut 12,000 jobs in its power di­vi­sion.

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