Shut down speculations
Last weekend, General Electric (GE) said that it isn’t going to shut down the French factory that was targeted for over 1,000 job cuts. Hugh Bailey, General Electric’s general manager in France, discussed the company’s intentions. He replied to a question during a media interview in Paris on June 1, according to Reuters.
General Electric has put all of the speculations to rest. The media was reporting about the possible sale of General Electric’s power plant in Belfort. The company announced lay-offs at the factory on May 28. During the interview, Bailey stated that the company is looking for alternative opportunities including manufacturing aeronautical parts at the Belfort plant.
General Electric got the Belfort site after it acquired Alstom Power in 2014. The company committed to generating 1,000 jobs by 2018. At the time, Alstom was Belfort City’s biggest employer. Currently, the Belfort site has 4,300 employees. The employees handle General Electric’s gas, nuclear, hydro technology, and steam power.
The company decided to lay off employees due to lower turbine orders. Apart from lowering costs, General Electric is looking for ways to make its operations more efficient across the struggling power unit in France.
What’s troubling the power business?
Once General Electric’s main growth engine, the power business has been struggling to cope with changing industry dynamics. The demand for fossil fuel–based power plants has been declining. Companies that generate electricity are focusing more on renewable and energy efficient alternatives. Utility companies including Dominion Energy (D), Xcel Energy (XCEL), and Vistra Energy (VST) have lowered their dependency on fossil fuel–based power plants. The companies have shifted their focus to renewable sources.
General Electric’s CEO, Larry Culp, said that previous managers only focused on getting more orders to increase the market share. However, a significant number of orders weren’t attractive or profitable, which cost General Electric millions of dollars.
Due to unprofitable orders and shrinking demand, General Electric had to write off $22 billion worth of power assets to reflect these realities. Last year, the company’s power business unit registered a YoY decline in its revenues and order value of 22% and 23%, respectively. The segment recorded an operating loss of $808 million in 2018 compared to an operating profit of $1.95 billion in 2017.
The Industrial Select Sector SPDR Fund (XLI) has allocated 3.8% of its fund in General Electric stock. XLI, which invests in industrial-sector stocks listed in the S&P 500, has gained 12.6% in 2019. XLI has outperformed major US indexes’ returns. The Dow Jones, the NASDAQ, and the S&P 500, have risen 6.4%, 10.5%, and 9.5%, respectively.