GE Just Cut 12,000 Jobs: We Explain What’s Behind the Layoffs

General Electric, the industrial manufacturing giant, said Thursday it will cut 12,000 jobs from its power business.

The layoffs are intended to help GE achieve $1 billion in cost savings over the next few years, the company said in a press release.

Behind the GE layoffs

GE Power, which produces a wide range of energy systems including power plants, turbines, and generators, is the company’s largest and most profitable division. It employs 57,000 people and had $27 billion in revenue for 2016, according to the Wall Street Journal. *

GE claims its power unit delivers one third of all electricity globally. The unit ran into trouble after it made a big bet on coal production, according to reports. It will now shift gears to renewable power such as wind and solar.

“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,” Russell Stokes, president and chief executive of GE Power said in a statement. “(GE) 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.”

Remember when GE Cut Its Dividends?

The layoffs are in line with GE’s announcement last month that it also plans to reduce its dividend by half. GE had been one of the biggest dividend payers in the U.S., distributing about $8 billion a year in cash annually to its shareholders, according to reports.

Companies tend to cut their dividends, which are a share of profits distributed to shareholders typically on a quarterly or an annual basis, when their earnings decline or their cash flow isn’t sufficient to fund the dividend payment.

Despite an economy and stock market that has roared ahead in 2017, GE reported weaker than expected earnings in the third quarter, with particularly soft performance in its power generation and oil and gas segments, which both posted losses, according to reports.

GE also said cash flow to fund operations for the year would be about $7 billion, roughly half earlier estimates of $12 to $14 billion, according to the New York Times.

More about GE

GE, one of the largest companies in the U.S., is a sprawling conglomerate with approximately 300,000 employees around the world. Its numerous business lines include the manufacture of aircraft engines, equipment for oil and gas mining, and diagnostic imaging systems for the healthcare industry, as well as home appliance manufacturing, not to mention consumer finance.

GE, an icon of U.S. business for 125 years, is the last remaining original component of the Dow Jones Industrial Average, and once one of the most admired companies globally. Its stock price has fallen about 44% in 2017.

News of the layoffs caused GE’s stock to increase 1.4% on Monday morning.

Top takeaways:

  • Industrial conglomerate GE will layoff 12,000 workers from its power unit.
  • The company says the layoffs are necessary to achieve $1 billion in cost savings.
  • GE also cut its dividend in November to save money.
  • The layoffs could help streamline GE’s power unit as it shifts to renewable energy.

 

*Information reported in GE’s Power Division to Eliminate 12,000 Jobs After Misjudging Demand, published December 7, 2017 in the Wall Street Journal.

 






Author:
Jeremy Quittner is the financial writer for Stash.



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