General Electric Co plans to cut 7,000 jobs at GE Capital, the source of about 40 percent of the company's profit, and reduce expenses at the business by about US$1 billion this year.
GE Capital, based in Stamford, Connecticut, had 91,000 employees at the end of last year. Revenue at the unit fell 6 percent in the first quarter.
General Electric shares have declined 14 percent since Thursday, when the company said net income fell for the first time in more than seven years and first-quarter sales were little changed. The drop fed investor concern that profit growth is slowing at the world's largest company by market value.
The slowdown at the capital unit "shocked a lot of people, and now they're responding to it by taking headcount out," said Rich Turgeon, an analyst with Victory Capital Management, which owns shares in General Electric. "My question is, why is growth slowing? It's a little disappointing."
Jim Parke, chief financial officer of the financing unit, disclosed the job cuts on a conference call with investors.
They're in addition to 3,000 job cuts the financing unit said it planned in December as it consolidated administration at some of its 24 businesses, such as European equipment financing.
The latest job losses stem in large part from its growing use of the Internet and other digital tools to cut costs, as well as the elimination of duplication at companies it's acquired, said spokesman David Frail.
The company plans no one-time expenses for the "regular, ongoing productivity initiatives," he said, adding that the unit has cut 19,000 jobs since the second half of 2000. Total employment at the unit may not decline because the company may grow in other areas or add new workers through acquisitions, Frail said.
Profit at the maker of aircraft engines and light bulbs, and parent of NBC and the GE Capital financing unit, rose for 20 consecutive years under former chief executive Jack Welch, who retired in September. Shares averaged an annual return of 24 percent during his tenure, though have fallen 20 percent since Jeffrey Immelt took over as chief executive.
"People just don't know if they're going to be able to keep earnings" at that level, said Carl Domino, who manages US$1.7 billion at Northern Trust Value Investors.
Shares of General Electric fell US$1.70, or 5.1 percent, to US$31.85 yesterday. The company had 310,000 employees last year.
The New York Times on Monday quoted Robert Olstein, an accounting expert and manager of the Olstein Financial Alert Fund, as saying GE "is going to stumble before the year is out" because its profit is based on financial engineering.
Critics such as Olsten maintain that General Electric manipulates the timing of gains and losses at GE Capital to keep earnings steady. GE Capital's earnings rose 8 percent in the quarter, although analysts later attributed the growth to a lower tax rate.
General Electric characterized the New York Times article as "biased and one-sided," according to a letter to shareholders posted on the company's Internet site that detailed what it called errors in the story.
GE Capital expects to sell US$50 billion to US$70 billion of debt in 2002, and to have about US$475 billion of assets by the end of the year, Parke said on the call. Some US$10 billion to US$20 billion of new debt will be used to pare commercial paper, short-term financing companies use to finance day-to-day operations.
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