General Electric Co. (GE) - Get General Electric Company (GE) Report is cutting 12,000 jobs in its power division as the industrial conglomerate works to make itself leaner and achieve $1 billion in cost savings in 2018.
The cuts announced on Thursday are driven by challenges in the power market worldwide, GE said in a statement. The company noted that traditional power markets, including gas and coal, have softened and "volumes are down significantly in products and services driven by overcapacity, lower utilization, fewer outages, an increase in steam plant retirements and overall growth in renewables."
The Boston-based industrial conglomerate has told employees in Germany that about 1,600 people will be laid off, along with about 1,200 in Switzerland. The global figure may reach 12,000, GE said, a figure that would equate to almost a fifth of the GE Power workforce.
GE shares rose to $17.71 on Thursday. The stock was moving slightly higher in pre-market trading to $17.81.
The jobs cuts show that GE is "focused on achieving $1 billion cost savings targeted to be realized in 2018," said Nick Heymann, an analyst at William Blair & Co. Heymann noted, however, that GE's operational restructuring will persist into 2019 for the power division, and that this workforce reduction "does not include 2019 cost cuts."
William Blair has an "Outperform" rating on the stock. Heymann noted that he has included 10 cents for restructuring in his fourth-quarter earnings per share estimate of 27 cents. "I believe the only incremental restructuring costs that are likely could come from non-cash write-downs and provisions related to the $20 billion of assets that GE expects to exit over the next 12 to 24 months," he said.
"General Electric's poor earnings, cash flow and stock performance bring a need to lower complexity, yet CEO John Flannery's strategic plan falls short with $20 billion asset sales and $1 billion in additional cost cuts," said Bloomberg Intelligence senior industry analyst Karen Ubelhart. "Cost reduction of $1 billion in Power, its largest unit and where much of the restructuring is focused, including 18% workforce cuts are positive steps and could be a sign GE will move swiftly."
"Given the challenges within the global power markets, today's announcement represents an obvious next step in reducing headcount and footprint in order to improve margins and cash flow within the struggling business," McCarthy continued. The firm maintained its "Hold" rating on GE stock with a $20 price target.
GE said that its power unit will remain a work in progress in 2018. "We expect market challenges to continue, but this plan will position us for 2019 and beyond," the company said.
"The business of power has collapsed," TheStreet's Jim Cramer said on CNBC. "It's fossil fuel -- the world is rapidly going against fossil fuels, we do not need more [power] plants."
Notably, GE leads U.S. companies in announcing the most job cuts this year, according to Bloomberg. The company has eliminated a total of 19,242 jobs in 2017, ahead of General Motors Inc. (GM) - Get General Motors Company (GM) Report and Macy's Inc. (M) - Get Macy's Inc Report .
Cramer, who holds GE in his charitable trust, Action Alerts PLUS, said that he intends to buy more of GE, somewhere below $18.
More of What's Trending on TheStreet: