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GE to Lay Off 4,500 Employees in Europe for Reducing Costs

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According to a Reuters report, General Electric Company (GE - Free Report) is likely to lay off about 4,500 employees in Europe as part of its corporate objective to lower operating costs and improve profitability. Although the company spokesperson declined to comment on the grapevine, an unnamed union source confirmed the veracity of the news.

The job cuts are mostly centered on the power and grid businesses that GE bought from Alstom in 2015 and will affect employees in Switzerland, Germany and Britain. Billed as one of the largest acquisition by GE at about $10 billion, the transaction increased the employee count of the company by approximately 65,000 with the addition of several field offices and manufacturing sites across the world. This significantly increased the operating costs of the company and eroded margins as demand for new power plants waned due to competition from cost-competitive wind and solar systems and higher inventory in the market. Consequently, management was forced to initiate some drastic steps and eliminate redundant positions in order to improve profitability.

The strategic move is also in tune with the broader goal of the industrial goods manufacturer to integrate the energy connections and power businesses with GE Power, seeking to save about $1 billion in costs in 2018 and an additional $500 million in 2019. The latest layoff follows a similar exercise last month, when GE trimmed staff at its interim corporate headquarters in Boston and eliminated about 100 sales positions within the GE Digital division.    

The continued reduction in employee headcount is aimed at scripting a turnaround for the 125-year-old conglomerate by reducing operating costs and strengthening its liquidity. Shares of GE have underperformed the industry year to date, with an average loss of 44.1% compared with a decline of 5% for the latter. In order to boost the company’s sagging shares, CEO John Flannery has also decided to focus on just three core segments — power, aviation and health-care equipment — and gradually exit all other businesses. In addition, GE aims to improve its profitability by reducing overhead costs by $2 billion in 2018, majority of which is likely to come from the beleaguered power segment that sells electrical generation equipment. GE further intends to sell assets worth $20 billion to improve its liquidity.

Flannery has termed 2018 as a reset year and expects the company to stage a turnaround to reward its shareholders with risk-adjusted returns. Critics, however, have widely raised concerns about the efficacy of such steps.

GE has a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the industry include Danaher Corporation (DHR - Free Report) , 3M Company (MMM - Free Report) and Leucadia National Corporation , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Danaher has a long-term earnings growth expectation of 10.6%. It surpassed estimates in each of the trailing four quarters with an average positive surprise of 2.6%.

3M has a long-term earnings growth expectation of 10.2%. It delivered an earnings beat thrice in the trailing four quarters with an average positive surprise of 2.5%.

Leucadia has an expected long-term earnings growth rate of 18%. It exceeded estimates thrice in the last four quarters with an average beat of 21.2%.  

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