Oct 25 (Reuters) – General Electric Co (GE.N) on Tuesday cut its full-year profit forecast after reporting a drop in third-quarter profit, largely due to warranties and related reserves at its renewable energy business Increase.
However, the company reported free cash flow that was much higher than expected. Its quarterly revenue also beat Wall Street’s expectations.
GE shares were down about 1.8 percent at $72.02 in midday trading.
The company is splitting into three companies, and its onshore wind business faces challenges. The unit, GE’s largest renewable energy business, has struggled with rising raw material costs due to inflation and supply chain pressures.
In the U.S., which has been GE’s most profitable onshore wind market, policy uncertainty following the expiration of a tax credit for renewable power production last year hurt demand, causing renewable energy revenue to drop 15 percent in September from a quarter from a year earlier.
Chief executive Larry Culp said onshore wind is a “battleground” for the company, which aims to make its renewable energy business profitable by 2024.
While the resumption of U.S. tax credits for wind power projects is expected to boost demand in the mid- to long-term, GE expects to lose about $2 billion in renewable energy this year.
“In the short term, customers continue to defer investments into the future,” Chief Financial Officer Carolina Dybeck Happe said on the earnings call.
As part of a plan to restructure and resize the business, the company will reduce the global headcount of its onshore wind division by about 20%. Culp told Reuters that the layoffs will take place over the next 12 months.
The restructuring will also affect work at its renewable energy division headquarters, he said.
GE is looking to cut corporate costs as it prepares to split into three separate businesses. The company said the corporate restructuring and cuts in its renewable energy business would cost $1.3 billion and save $950 million a year.
GE said it saw “early signs” of improving supply chain issues and was getting better at passing the increased costs on to customers.
Still, supply chain and macro pressures dented its total revenue in the September quarter by 4 percentage points.
GE reiterated that demand in its aviation division is expected to remain strong, leading to revenue growth of more than 20%. The company reported double-digit growth in jet engine deliveries since the second quarter.
The Boston-based industrial conglomerate now expects 2022 adjusted profit of between $2.40 and $2.80 per share, compared with an earlier estimate of $2.80 to $3.50.
The company reported adjusted earnings of 35 cents a share, down from 53 cents a share last year. Excluding a $500 million warranty and related reserves in its renewable energy business, quarterly profit would have been 75 cents a share.
Free cash flow for the September quarter was $1.19 billion, well above previous estimates.
Reporting by Rajesh Kumar Singh in Chicago and Abhijith Ganapavaram in Bengaluru; Editing by Saumyadeb Chakrabarty, Sriraj Kalluvila, Nick Zieminski and Josie Kao
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