Sales down, power market still faces “overcapacity”
GE said its power division saw orders of US$2.9 billion in the second quarter—down 42% compared to the same period of 2019—as the effects of COVID-19 slammed the global economy.
On a brighter note, GE’s revenues were stronger than forecast, mainly driven by sales in the company’s power and renewable energy divisions. Revenues from power came in at US$4.16 billion and renewable energy raked in US$3.51 billion, both beating expectations.
GE said Gas Power orders included six gas turbines, including four aeroderivative units, in the second quarter.
“We continue to monitor the impacts of COVID-19 on near-term demand and the impact it is having on our operations, including the supply chain and our ability to service our installed base,” the company reported.
Global electricity demand declined in the second quarter, however, both gas-based electricity generation and GE gas turbine utilization remained stable, the company said. As a result, GE’s long-term service agreement billings increased compared with the prior year.
“Our ability to close transactions has been impacted by constrained customer budgets and access to financing due to oil prices and economic slowdown, especially in Gas Power,” the company said. “We are seeing the impact on our suppliers and within our supply chain, which has resulted in delays in parts and equipment output. In addition, the servicing of our customers’ assets has been delayed due to travel and country restrictions.”
Although there may be market challenges in the near term, GE said it believes the long-term outlook for the role of gas in the power market has not materially changed.
“Power is continuing to right-size its business to better align with market demand and driving its businesses with an operational rigor and discipline that is focused on its customers’ lifecycle experience,” the company said.
As a result of expected volume declines from COVID-19 in the near term, GE said it has taken several measures to offset these pressures. In addition, the company executed a hiring freeze, accelerated planned employee reductions where possible, and is initiating “meaningful incremental headcount reduction plans” in line with the demand profile.
“Looking ahead, we anticipate the power market to continue to be impacted by overcapacity in the industry, increased price pressure from competition on servicing the installed base, and the uncertain timing of deal closures due to financing and the complexities of working in emerging markets and the ongoing impact of COVID-19,” the company said. “Market factors such as increasing energy efficiency and renewable energy penetration continue to impact long-term demand. While we navigate the near-term impacts of the COVID-19 pandemic, we will continue to invest in new product development, such as our HA-Turbines, and upgrades as these are critical to our customers and the long-term strategy of the business. Our fundamentals remain strong with approximately US$80 billion in backlog and a gas turbine installed base greater than 7000 units, including approximately 1800 units under long-term service agreements.”
Baker Hughes update
GE said it planned to sell its remaining stake in oil-and-gas company Baker Hughes over three years.
“Executing on this program over time will allow GE to divest a substantial non-core asset, redeploy capital, enhance financial flexibility, and strengthen its balance sheet,” the company said in an news release.
Baker Hughes, which has a heritage dating back to the early 1900s, became part of GE in July 2017 as part of a US$30 billion deal that combined Baker Hughes with GE Oil and Gas. The combined company had roughly US$23 billion in annual revenue. Its portfolio includes a range of oilfield technologies and maintains an extensive portfolio of gas compression products and services, including heavy-duty and aeroderivative gas turbines, steam turbines, centrifugal compressors, expanders, pumps, valves, fuel gas systems, gearboxes and pre-commissioning and maintenance services.
But only a few months after the blockbuster deal was finalized, GE’s-then CEO John Flannery was publicly discussing “exit options” for Baker Hughes. At the end of June 2018 – less than a year after the merger – GE said it would “pursue an orderly separation” from Baker Hughes because the company didn’t fit GE’s newest strategy to right itself in a massive revamping that included divestitures of BHGE and GE Healthcare and a refocusing of GE primarily as an aviation, power and renewable energy player.
Last year, Arcline Investment Management, a private equity company, signed a definitive agreement to acquire the reciprocating compression division of Baker Hughes.
The reciprocating compression division manufacturers and services compression and engine systems used in several applications, including natural gas transmission. The division serves as the original equipment manufacturer and supplier of parts for its systems, and also provides overhaul and repair services to its customers. The division handles its manufacturing operations in Houston, Texas and Salina, Kansas. Its overhaul and repair shops are located across the United States.