A drop in orders of more than 40% in its renewable energy unit dragged down General Electric Co.’s third-quarter results, leading Chairman and CEO Larry Culp to roll out a plan to cut $500 million in annual costs from that division.
Boston-based GE posted a net loss of $238 million in the three months ended Sept. 30, reversing a year-ago profit of $1.2 billion. Total segment profits fell by a quarter to $1.2 billion. Revenues rose 3% to $19.1 billion and, adjusted for various items, GE executives said profits came in at nearly $1.1 billion, down 19% from the same period last year.
GE’s renewable energy businesses, however, saw revenues fall 15% in Q3 to $3.6 billion, a drop executives attributed in part to the expiration of a production tax credit and customers holding off on investments until next year, when the Inflation Reduction Act’s tax credits kick in. That top-line decline as well as about $500 million in new warranty reserves led the unit’s pre-tax losses to balloon to $934 million from $151 million in the same period of 2021.
On a conference call with analysts, Culp said GE’s onshore wind business–which has since 2017 built 40 gigawatts worth of equipment–is “the battleground” in the overall renewables group’s journey toward profitability by 2024. The rapid growth of onshore has strained GE’s manufacturing processes and supply chain, Culp said, and work to improve quality in plants and at installed equipment has taken time to bear fruit.
“We need to industrialize faster to counteract these dynamics, and we are,” said Culp, whose team has in recent quarters also narrowed the types of onshore wind projects it is chasing. “First, we're drastically simplifying and standardizing too many variants into what we call workhorse products so we and our suppliers can implement more repeatable manufacturing processes. This enhances product quality and reduces cost.”
The GE team plans to overhaul the energy businesses, with a focus on renewables, with a plan that will come with a roughly $600 million restructuring cost but, if successful, save the company about $500 million annually. That includes cutting one of out every five onshore wind jobs and “more broadly delayering” elsewhere in the renewables group.
The poor energy results negated a strong quarter from GE Aerospace, where sales rose 24% year over year to $6.7 billion and profits jumped 52% to nearly $1.3 billion. CFO Carolina Dybeck Happe told analysts the GE team expects that business to maintain both its revenue growth of more than 20% and its margins in the high teens. At GE Healthcare, which will be spun out as an independent company in January, profits were essentially flat at $712 million while sales climbed 6% to $4.6 billion.
On Oct. 25, Culp and Happe also announced a second restructuring plan that will look to cut $450 million in annual costs from GE’s corporate organization as it prepares to divest its healthcare and energy and power (in early 2024) divisions. That program will come with a charge of about $700 million, most of which GE will take in Q4.
Investors took GE’s numbers in stride. The company’s shares (Ticker: GE) were down about 3% at one point Oct. 25 but steadily recovered ground during the afternoon to close at $73, down 0.5% on the day. Over the past six months, they are down about 10%, trimming the company’s market capitalization to about $80 billion.
