A day after labor unions warned that General Electric was planning thousands of job cuts in its troubled power-generation unit, GE confirmed that it’s planning to cut 12,000 jobs globally in its power business as the company’s new leadership tries to revive the company’s moribund stock price.
The reductions would account for about 18% of GE Power’s workforce, will mostly affect professional and production workers outside the US. GE is also paring back capital expenditures and research-and-development spending as it grapples with a sharp downturn in gas- and coal-power markets.
The cuts add to a flurry of reductions by recently installed Chief Executive Officer John Flannery, who has already scaled back use of corporate jets and delayed work on a new Boston headquarters since taking over from longtime CEO Jeff Immelt back in August. GE, the world’s largest maker of gas turbines, said last month it would pare the quarterly dividend and sell some businesses.
Trimming the workforce will help GE achieve its goal of slicing $1 billion of structural costs next year in the power division. That plan is part of a larger effort to cut $3.5 billion of expenses across the company through 2018.
GE shares were up 0.5% in premarket trade. However, the company’s shares have sunk 44% this year.
According to Bloomberg, GE had about 300,000 employees across its operating units 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 the effects of a reorganization this year in which GE added some energy businesses to the unit.
The manufacturer has been hit hard by flagging demand for electricity generated with natural gas, in part due to a shift toward power from renewable sources. In addition, “we have exacerbated the market situation with some really poor execution,” Flannery told investors last month.
The power unit expanded considerably with the $10 billion acquisition of Alstom SA’s energy business in 2015 – 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.
“Alstom has clearly performed below our expectations,” Flannery said last month, referring to the assets acquired from the French company.
As the size of the hurdles became clear this year, GE made changes to management in the power business and reorganized divisions. Russell Stokes was named head of GE Power in June, taking over from Steve Bolze, who left the company shortly after Flannery was named to succeed Jeffrey Immelt as GE’s next CEO.
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, South Carolina, and Schenectady, New York. GE also met with union representatives in Europe this week to discuss cutbacks there.
Today, Reuters reported that GE is planning to slash 1,600 jobs from its power-generation business in Germany. The cuts will affect staff in Mannheim, Stuttgart, Berlin, Moenchengladbach and Kassel and will be confirmed after talks with labor representatives, GE said in a statement. Yesterday, Reuters reported that the company could cut as many as 4,500 jobs across Europe.
After the financial crisis he divested many of GE’s ‘toxic’ financial divisions at the bottom and instead invested heavily in the oil sector instead, which looked like a smart move, until the business topped.
Back in November, Flannery slashed the dividend by 50%, hoping to rescue some cash flow.
Even as the stock has underperformed, because of the rapidly decreasing earnings and declining sales, GE isn’t cheap on a historical basis, based on p/b, p/s, p/e ratios. As a matter of fact, at 28x earnings and 1.7x sales, the stock is still at the top end of its valuation.