G.E. and its new chief executive, John L. Flannery, have been under pressure broadly to remake the company. The company’s stock has plunged more than 40 percent this year, the worst performance by far on the Dow Jones industrial average. The company reported a steep decline in profit for the third quarter.
Last month, Mr. Flannery announced plans for a slimmer, more focused G.E. concentrated on three core businesses — energy, health care and aviation. The move is a departure from the empire-building ambitions of past chief executives who sought to create a vast conglomerate across disparate industries.
As part of the overhaul, Mr. Flannery has demanded more financial discipline, with plans to shed nearly $20 billion in assets in the coming years, including some that reach back to the days of its founder, Thomas Edison, like light bulbs and railroad locomotives. The company also cut its dividend for only the second time since the Great Depression.
Mr. Flannery, who took over in August, has called 2018 a “reset year.”
“Flannery’s moves are the obvious, basic ones that he needs to play to turn G.E. around,” said Robert McCarthy, an analyst at the research firm Stifel. “If this doesn’t work, it could presage a larger breakup of the company.”
The company, in part, is paying for past mistakes.
Two years ago, G.E. spent $13.5 billion to buy the power division of Alstom, a French company. The unit, G.E.’s largest industrial acquisition at the time, has since then “clearly performed below our expectations” and offered only single-digit returns, Mr. Flannery told investors in a conference call last month.
But the Alstom unit “is also an asset that has a 20-, 30-, 40-year life to it,” said Mr. Flannery, who helped negotiate the acquisition.
G.E. also recently merged its oil-and-gas unit with a fellow services provider, Baker Hughes, to strengthen the business during the worst slump in the industry in more than two decades.
Now, Baker Hughes is underperforming rivals. And analysts said that G.E. may be looking for ways to exit the marriage.
G.E. is at the forefront of gas turbine technology and has a new line of large power generators that can each produce enough energy for 500,000 households. But the company misjudged the market for smaller and replacement equipment. Mr. Flannery told investors that the company had exacerbated a tough market situation “with some really poor execution.”
Russell Stokes, the head of the company’s power division, has told investors that he planned to cut back the division’s capital expenditures next year to nearly half its current level. His team, he said, will be “sweating every dollar.”
“There’s no doubt that the market has been soft, but they’re not telling every side of the story — that clearly there have been bad decisions made at the organization and about how they were going to market in select businesses,” Mr. McCarthy of Stifel said.
General Electric is also trying to navigate the energy future.
By 2024, solar and wind energy technology is expected to attract two-thirds of global investment in power plants and account for as much as 40 percent of total power generation by then, according to the International Energy Agency. As such renewables take hold, natural gas is likely to be pushed from a primary role to a supporting role when the wind does not blow and the sun does not shine.
G.E. has carved out a space in renewable energy, producing wind turbines. But it faces significant price pressure from competitors, particularly in China.
All the while, demand for power is rising more slowly than in the past, owing to the improved efficiencies of appliances and commercial buildings increasingly engineered to save electricity. Power demand growth in China, for instance, has slowed to less than 2 percent a year since 2012 from 8 percent a year from 2000 to 2012.
G.E. said the job cuts in the power business would help it save $1 billion as it moved to reduce costs by $3.5 billion this year and next. The employees losing their jobs work in production and professional roles. About half are based in Europe.
“This decision was painful but necessary for GE Power to respond to the disruption in the power market,” said Mr. Stokes. “We expect market challenges to continue, but this plan will position us for 2019 and beyond.”
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