There is no doubt that General Electric continues to be one of the world’s leading companies, the type that continues to transform itself for the future. But no matter how iconic the company has become, it still fails to dodge many of its major problems. According to CNN, its profit plunged 58 percent during the second quarter, thanks to orders of gas turbines experiencing a plummet.
There is definitely a slump right now at GE Power, which is the largest division of the company in terms of revenue. This slump, in particular, underscores the many challenges the business is facing. It sure is not helping, especially since it has already broken itself apart due to the selling of its healthcare, light bulb, rail, and other several businesses.
General Electric’s power struggles came with overall earnings which are down by 30 percent last quarter. This automatically offset the strength in both aviation and healthcare. Still, this did not stop the company from expecting its 2018 free cash flow to be at the lowest end of its forecast.
Although the company managed to rise in the first part, it still ended up having a drop in its shares by 4 percent. Meaning, it has lost about a quarter of its overall value this year alone.
According to the CEO of General Electric, John Flannery, the company is fully aware of the situation it is in. He even revealed the biggest challenge that it is facing, and it is none other than the turnaround of its power business. Flannery made the comments during a conference call.
He continued that the demand for orders has been quite soft. This ultimately pressured the company’s cash flow and working capital.
It is worth noting that GE Power has been trapped by the rapid rise of renewable energy, a phenomenon that shook the division. And it surely did not help that it is unprepared. Basically, power plants nowadays are switching away from fossil fuels, such as coal and natural gas. They are more into utilizing energy derived from solar and wind.
There is a silver lining, however, as the experts on Wall Street expected worse results from General Electric. That is because the company still managed to grow its overall revenue by 3 percent. This is due to the continued popularity of its aviation and oil and gas. And while the company is still suffering, management is still able to maintain its earnings outlook for the rest of 2018.
Add to this the fact that the company is making huge progress by slashing costs, a move that is seen to be an effort in stabilization. GE stated that at least $1.1 billion was cut off (industrial costs) this year in an effort to exceed its goals and save about $2 billion.
Much of these adjustments were made solely at GE Power. Unfortunately, this also means that 12,000 jobs were cut. Flannery, however, is positive that the problem in the department will soon be fixed. He is aware, nonetheless, that the turnaround will neither be smooth and quick.
Power is not the only division that continues to hurt the company. That is because its locomotive department is also facing the same issue, especially after profit declined by double digits. The same thing can be said with renewable energy, which is primarily about onshore wind. This division, in particular, suffered a 48 percent plunge in earnings. This was due to a huge decline in orders, including a slump in prices.
There is a bright spot, though, which is basically aviation. This department is responsible for making and servicing jet engines. From profit to revenue to orders, all of them have risen solidly in the department. In fact, as per the announcement from GE, orders saw a spike of 62 percent due to the strong demands for both GENx and LEAP Engines.