GE Renewable Energy reported a third-quarter profit of $5 million, with the steam power division also reporting a third quarter profit. However, overall orders of wind and steam turbines remain depressed compared to last year.
CEO Larry Culp attributed the turnaround performance in both divisions to ongoing cost-saving measures and virtual "lean week" exercises to identify new "cost improvement opportunities." The company has also engaged in a strategic review of each business segment focused on long-term opportunities for profitable growth. "The quality of our strategic thinking was much improved versus a year ago," Culp said.
GE has experienced a "significant use of working capital," over the last two years, according to CFO Carolina Happe. With only gradual improvements anticipated for GE's healthcare and aviation divisions, achieving a positive cash flow for the company in 2021 will depend on projects in power and renewables and what Culp described as a "game of inches" with improved daily management.
With GE corporate putting more weight on its power and renewables divisions in light of potentially drawn-out recoveries for aviation and healthcare, Culp heralded the third-quarter profit by GE Renewables as a sign markets are stabilizing, but warned "stability is not yet recovery."
Orders from the renewables segment dropped 18% year-on-year for the third quarter, a decline GE attributed primarily to a one-time 6-megawatt offshore wind order in 2019. "Remember that this can be a lumpy business," Culp said Wednesday during the company's Q3 earnings call. "In offshore wind, we're building a robust deal pipeline to capture secular growth through the decade."
The renewables division recently finalized a contract with Dogger Bank for what will become the world's largest offshore wind farm, Culp said. In September, GE Renewable Energy announced that it had finalized a contract to supply 95 Haliade-X 13 MW wind turbines for the first and second phases of Dogger Bank Wind Farm.
"We continue to build on our legacy of innovation, leading with technology," he said. "This was evidenced by some big wins this quarter."
Orders of gas power equipment and services were also down, contributing to a 12% decrease in orders for GE's overall power division. Culp noted that overall global electricity had declined due to the pandemic, but that gas-based power generation remained resilient. Revenue for the power division was up 3%, contributing to a $150 million profit.
"I think we're encouraged by the turnarounds at both power and in renewables," Culp said. "We came into the year knowing that 2020 was going to be an important year for both businesses to demonstrate traction in that regard.... But as the year has played out, certainly as the fall here has played out, we're again encouraged by what we see from the businesses broadly."
However, with both divisions experiencing declines in orders, Happe said GE reduced the headcount of its power division by 600 during Q3 and by 900 in the renewables division. Across the board GE has reduced its workforce by 8% so far this year, and Happe said the company expects to eliminate another 5,000 positions by year end.
Culp said the cost-cutting measures and efficiency exercises were "driving long-term profitable growth even in the current environment." However, he warned that GE anticipates a steep market decline through the fourth quarter and that recovery for the company would likely span multiple years.
Culp also highlighted GE's announced plan to exit the new build coal power market, and said the decision highlights the company's overall direction with respect to decarbonization and business strategy. GE itself has exceeded its 2020 emissions goal, reducing company emissions by 21%, and has committed to achieving carbon neutrality by 2030.