General Electric Co (GE.N) said on Friday that it would double its 2016 budget for restructuring spending to fight the effects of low oil prices and slow global growth that pummeled its earnings last year.
The U.S. conglomerate plans to spend $3.4 billion on restructuring measures this year, double the $1.7 billion it targeted just last month, Chief Financial Officer Jeff Bornstein said in an interview just hours after GE reported lower-than-expected quarterly revenue.
The company's shares were down 1.3 percent at $28.24 in afternoon trading after falling as much as 3.1 percent earlier in the session.
Bornstein said the restructuring would affect all of GE's diverse industrial units, "with an emphasis on oil and gas" operations, whose profit had tumbled 19 percent in the fourth quarter.
GE also plans to double cost reductions in the oil and gas business, which supplies equipment to energy prospecting and production companies. It is targeting as much $800 million in cuts in 2016, compared with an earlier goal of $400 million, Bornstein said. It cut $600 million in the business in 2015.
The restructuring measures include consolidating factory and service-center real estate, improving supplier relationships, making plants more efficient and reducing overhead and product costs.
The emphasis on restructuring comes as GE transforms itself into a digital-industrial company, making complex machines and the software to run and monitor them. It plans to move its global headquarters from Connecticut to Boston, which it said attracts a "technologically-fluent" workforce.
The company plans to fund the increased restructuring actions with proceeds from the $5.4 billion sale of its appliance business to China's Haier Group, a deal announced last week.
STUNG BY OIL PRICES
Oil and gas results released on Friday showed the powerful effect of falling energy prices.
The drop in earnings at the unit pulled GE's overall industrial profit down 8 percent to $5.52 billion, the company said.
GE expects oil and gas revenue to fall a further 10 percent to 15 percent in 2016 because of weak oil prices, Bornstein and Chief Executive Officer Jeff Immelt told investors on a conference call.
But restructuring and cost-cutting should cushion the blow, Bornstein said.
Excluding special items, GE's total fourth-quarter earnings of 52 cents a share beat the analysts' average estimate of 49 cents, according to Thomson Reuters I/B/E/S. Revenue rose 1.4 percent to $33.89 billion, below analysts' expectations of $35.7 billion.
Within the oil and gas business, GE plans to speed up integrating the power business it bought from Alstom SA of France (ALSO.PA), a deal that closed in November. It aims to accomplish in 2016 moves it had planned for 2017 and 2018.
GE also wants to increase industrial operating profit in 2016 by 3 percent to just above $19 billion, excluding the effects of the Alstom acquisition, Bornstein said. It is especially focused on services sales and improving margins.
The company recently said it planned to cut as many as 6,500 jobs associated with the Alstom purchase.
In 2015, GE said it cut overhead costs by $800 million and realized about $1 billion in savings from prior restructuring spending. That helped it boost its profit margin by about 0.8 percent points, Bornstein said.
(Additional reporting by Ankit Ajmera in Bengaluru; Editing by Jeffrey Benkoe and Lisa Von Ahn)