General Electric Co. (GE) is targeting annual sales of $100 billion from its energy unit, whose equipment provides more than a quarter of the world’s power, within the next decade.
That would more than double the projected $45 billion in 2011 revenue, John Krenicki, the vice chairman who runs GE Energy Infrastructure, said at an investor presentation today in Crotonville, New York. Last year’s total was $37.5 billion.
Once focused largely on natural-gas turbines in the U.S., GE’s energy business has expanded in the past decade into other products and regions. Fairfield, Connecticut-based GE announced $3 billion in orders today across its energy divisions and in more than half a dozen countries in addition to $1 billion in gas turbines in North America last week.
“We still have the world’s leading gas-turbine franchise,” Krenicki said. While the volume of large gas- turbine sales is lower than a decade ago, GE Energy is more stable and offers a much wider array of products, he said.
“If you look at the volume of gas turbines only in 2010, at 114, it’s roughly the same magnitude as in 1995,” Krenicki said. “And we’re making more than 10 times the operating profit.”
GE is targeting profit growth of 10 percent next year in its energy division, the company’s largest. Earnings this year should be about $7 billion, compared with last year’s $7.3 billion. Orders for gas-based power generation are rising and prices for renewable sources like wind, biogas and solar are stabilizing, GE said.
‘Closer to Inflection’
Chief Executive Officer Jeffrey Immelt is working to boost GE’s share of profit from industrial operations such as energy and shrink the percentage from GE Capital in part because investors value manufacturing companies more highly than finance.
“As the focus continues to shift toward GE Industrial, this piece of the story is getting closer to inflection,” C. Stephen Tusa, a New York-based analyst with JPMorgan Chase & Co., wrote in a note to clients. Tusa cited a 2011 profit forecast that’s higher than JPMorgan’s $6.8 billion estimate and an “upbeat tone” on orders. He rates GE as “overweight.”
GE fell 14 cents to $16.04 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have dropped 12 percent this year, while the Standard & Poor’s 500 Index has declined 4.4 percent.
Should the global economy deteriorate, GE Energy’s customers are among the most stable because they include sovereign clients and utilities used to operating in difficult times, Krenicki said.
“In an ugly scenario we have a terrific set of customers,” he said.
GE Energy has a $51 billion service backlog and a $20 billion equipment backlog, increases of 4 percent and 9 percent, respectively, this year, according to the presentation.
Profit margins should bottom at 15 percent this year, down from about 19 percent in 2010, hurt by lower wind-turbine prices and acquisition costs, the company said. They should begin to improve in 2012, said Dan Janki, previously GE Energy’s chief financial officer and now head of the new GE Energy Management division.
GE plans to invest 4 percent to 5 percent of sales in new products, as the company seeks to tap demand equaling five times Saudi Arabia’s oil production and four times Russia’s natural- gas production in the next decade.
About 9 percent of this year’s GE Energy sales are from large gas turbines, down from 44 percent of $24 billion in revenue in 2002, executives said.
“We’re not the same business we were 10 years ago, we won’t be the same business four and five years from now,” Krenicki said.
In the past decade, GE Energy has made about 90 acquisitions and is batting “700 out of 1000,” Krenicki said. Its skill in integration will be applied to $12 billion in acquisitions made since October, particularly in its oil and gas division, which has risen to $14 billion in sales from $4 billion in 2004.
“We’re very good at taking businesses out of sick bay,” Krenicki said, citing the company’s acquisition of Enron Corp.’s wind-turbine unit out of bankruptcy in 2002. “Very few of the acquisitions we’ve done over the past 10 years was on fire. Everything we’ve made better, and that’s what we’re doing.”
GE Energy isn’t likely to spend the same amount in acquisitions in such a short time frame anytime soon, Krenicki told reporters after the meeting. The division doesn’t have a specific goal, he said.
“What’s more likely is kind of a more steady flow spread out amongst the businesses,” he said.
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