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GE Unit Looks to Swap "Draconian" Cost Cuts for Green Growth

General Electric grew earnings in its appliances and lighting unit largely through layoffs and discretionary spending cuts last year, but now it's looking to energy-saving initiatives to spur growth.



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General Electric

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grew earnings in its appliances and lighting unit largely through layoffs and discretionary spending cuts last year, but now it's looking to energy-saving initiatives to spur growth.

James Campbell, GE Lighting and Appliance chief

"A lot of it was tough cost actions," says James Campbell, the unit's President and CEO, in an interview with


. "We had to make some draconian kinds of moves around head count, T&E

travel and entertainment spending -- a lot of the traditional things a lot of other companies did. We were able to get some deflation in the marketplace and leverage that, and you know quite honestly it was a lot of blocking and tackling because our top line was down."

The appliances and lighting unit grew earnings by 10% last year, delivering $400 million in operating profits to the parent. General Electric is slated to report its first-quarter results before the opening bell on Friday.

>>>General Electric: Earnings Preview

A big chunk of the unit's layoffs came in Hungary, where GE produces incandescent light bulbs. Many governments, including the United States and the European Union, are prohibiting the use of those bulbs in favor of more energy-efficient products. GE lighting announced last year it would cut 2,570 jobs in Hungary.

Once the core of GE's business, the appliance and lighting unit, which is headquartered in Louisville, Ky. and employs 27,000 people, gets little attention these days. Until last year, the businesses were part of a GE division called Consumer & Industrial, which accounted for 6.2% of revenues in 2009. That division also included an electrical distribution business, however. GE does not disclose the size of these individual businesses.

GE tried to sell its appliance unit in 2008, but pulled it off the market when the credit crisis drove away potential buyers. Three investment bankers I spoke to all said they thought there was a decent chance GE would look to sell both appliances and lighting in the future, though they had no knowledge that GE was actively contemplating such a move. Two of the bankers were fairly negative on the businesses, while the other (who follows GE more closely than the others) argued that they are simply too small to matter to the brain trust at the company's Fairfield, Conn. headquarters.

"If, as an investment banker, you go to GE and tell them they should sell appliances and lighting, they'll throw you through the window," he told me. "They've heard that idea a million times."

Campbell, however, says a renewed focus on energy saving products by consumers and businesses is making appliances and lighting more relevant to GE than it has been in some time. Support for this view came last year when the appliance business said it would be adding 830 jobs in Louisville.

"These technologies put the business in a very different spot than it might have been in two or three years ago. We're a business that's now being invested in," Campbell says.

The extent of that investment is unclear, however. A GE spokeswoman would not comment on whether the appliances unit has added more jobs than it has cut since the financial crisis began.

Campbell is especially upbeat about a business called general illumination, which includes outdoor flood lights for use in parking lots, referring to it as a "game changer."

"We're going to be able to provide a light source -- and we're not there today but we're evolving there very quickly -- that we'll use just dramatically less power than even the best systems today and last significantly longer."

Upfront costs for customers will be significant, though Campbell says outdoor floods may be eventually be able to last 15-20 thousand hours while using far less electricity than current models.

Hundreds of small companies are currently working on this technology, and GE rival

Koninklijke Philips Electronics

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has acquired about 30 of them. Campbell says GE has been more focused on developing its capabilities inside the company, while trying to gain an edge by focusing on specific applications such as lighting for refrigerator cases. Philips has about 50,000 employees in its lighting businesses globally, while GE has 27,000 employees in appliances and lighting combined.

Campbell hopes GE's appliance unit will benefit from consumers shifting to so-called "smart" technology, which is intended to reduce electricity costs by running certain appliances (such as a refrigerator's defrost cycle) at off-peak times. GE has been working on partnering with utilities such as

RRI Energy


to help implement this technology.

Surprisingly, given the importance of emerging markets to businesses like

GE Healthcare

and even the lighting business, the appliances business appears to have been slower than some rivals to go after sales around the globe.

Whirlpool Corp.

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has done very well selling its appliances in Brazil, for example.

GE Appliances has joint ventures with local companies in Brazil and China, but these are minority partnerships for GE. Campbell says 90-95% of his revenues for the appliance business come from the United States. That figure excludes those minority stakes, which nonetheless contribute to earnings at the parent level.

"In appliances there was a decision made years ago that we'd be more of a U.S.-centric Americas type of operation," Campbell says.

With the appliance unit stuck selling many of its products through


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, and a full-fledged U.S. recovery a long ways off, it's hard to believe GE shareholders should get too excited about this business. Lighting would seem to hold more promise, but it is unclear if GE can outpace rivals like Philips and

Siemens AG

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The appliance and lighting unit may have a tough time repeating 2009's performance if belt-tightening is off the table, competition is tough, and new products are still a ways off from coming to market. But these businesses remain an important part of GE's identity, so don't be surprised if they hang on to them for a while.


Written by Dan Freed in New York