GE’s Culp ‘Fighting Like Hell’ for Profit at Key Growth Unit
(Bloomberg) -- General Electric Co. warned that its wind-turbine division is unlikely to post a profit by the company’s 2022 target, as possible policy changes in the U.S. crimp short-term sales of clean energy gear.
The company sees demand for onshore wind turbines declining next year in the U.S., its largest market, as lawmakers consider extending a tax credit that’s meant to spur installations.
“We’re fighting like hell to get to break-even next year,” Chief Executive Officer Larry Culp said in an interview Tuesday. “But I think that that’s a lower probability outcome today than I thought it would be at the beginning of this year.”
It’s a setback for a key business in Culp’s push to revitalize the Boston-based maker of jet engines, power equipment and medical-imaging machines. GE Renewable Energy had been a consistent money loser, but operating improvements and rising demand led GE earlier this year to forecast that the business would reach positive profit margins in 2022.
Culp pointed to several areas of progress in the division’s turnaround. GE is underwriting wind deals with greater discipline while introducing new products like its massive Haliade-X offshore turbine, he said. Meanwhile, lean manufacturing has reaped gains on the factory floor and in the field, while the power-grid business is nearing the end of a restructuring that will get it to “break-even territory operationally,” he said.
Yet the market environment has changed in recent months as lawmakers consider extending the Production Tax Credit for onshore wind projects. While the credit would support clean energy projects in the long term, the possibility that it will be extended saps the urgency of moving ahead on projects in short order. That affects new orders and cash flow, as well as upgrades of existing installations, Culp said.
GE now expects U.S. installations of onshore wind turbines to decline next year, largely because of the tax credit situation.
Read more: Takeaways From GE, 3M, UPS, Raytheon Third-Quarter Earnings
“There’s a lot of progress being made in the businesses. Unfortunately, the effect of the PTC really does camouflage that nearer term performance,” Culp said, after the company posted third-quarter earnings.
GE rose 2.3% to $107.70 at 12:44 p.m. in New York. The stock had advanced 26% this year through Monday while the S&P 500 Industrials index gained 19%.
©2021 Bloomberg L.P.