GE profits hit by power sector decline

Rise of renewables and sliding demand for gas turbines hit earnings in second quarter

The logo of General Electric at subsidiary company GE Aviation in California. Photograph: Mike Blake/File Photo/Reuters

The logo of General Electric at subsidiary company GE Aviation in California. Photograph: Mike Blake/File Photo/Reuters

 

The rise of renewables and sliding demand for gas turbines hit General Electric’s earnings in the second quarter, underlining the difficulties the company faces in one of its remaining core businesses.

GE expects to sell only about 50 heavy-duty gas turbines for generating electricity this year, down from 107 last year. The market is being squeezed by competition from wind and solar power, for which costs have plunged in recent years.

Equipment for the power industry, including gas-fired and coal-fired power plants, is one of the three divisions that will comprise GE under the restructuring plan set out last month by chief executive John Flannery. The group’s other two largest divisions, in healthcare and oil field services, will be spun off.

However, the power division, which suffered a 45 per cent drop in profits last year, reported further declines in the second quarter. Orders dropped 26 per cent, and profits were down 58 per cent at $421 million for the three months to June.

The weak performance contributed to a 10 per cent drop in the group’s adjusted earnings per share excluding one-off items and pensions costs, to 19 cents for the quarter. That was in line with analysts’ forecasts, but GE’s shares nevertheless fell sharply after the announcement, and at noon in New York they were down 5 per cent at $13.04.

Difficult conditions

Jamie Miller, GE’s chief financial officer, said the difficult conditions in the power industry were expected to continue at least through the second half of 2018, and GE’s division was in “a multiyear turnaround”.

She said the business was on course to cut $1 billion in costs and 12,000 jobs this year, as previously announced, and left open the prospect that it could announce further cuts later in the year.

The gas turbine market has been tough for other manufacturers as well. Bloomberg reported last month that Siemens of Germany was looking at a possible sale of its heavy-duty gas turbine division.

GE has a strong position in renewable energy as one of the world’s largest manufacturers of wind turbines, but that division also had a difficult quarter, with orders down 15 per cent and profits down 48 per cent, in part because of pressure on prices. – Copyright The Financial Times Limited 2018