General Electric is On its Way to Becoming an Energy Powerhouse
Feb 6th 2014 9:53AM
Updated Feb 6th 2014 9:54AM
When you think of General Electric , a picture of an industrial conglomerate probably comes to mind. After all, for the past century, GE has been linked to appliances, jet engines, and light bulbs. While its industrial products and services are still an integral part of the company, GE has steadily built a massive oil and gas business that now accounts for a significant portion of its revenue and profit.
Going forward, that trend will only continue. GE has made several moves in recent months that will keep growing its oil and gas operations in the future. That's why, despite its popular connotation as an industrial conglomerate, GE might soon also be known as an emerging energy giant.
An energy powerhouse in the making
Not only is GE's oil and gas segment massive, it happens to be one of the company's fastest-growing businesses. GE's oil and gas operations grew revenue and earnings by 11% and 13%, respectively, in 2013. Revenue growth in that segment outpaced every one of GE's other businesses last year.
Because of its strong growth, energy is becoming one of the company's most prominent areas of operation. Oil and gas now represents 12% of GE's revenue base, and the segment is the company's fourth-biggest by revenue.
Over the next few years, GE will only expand on its energy footprint. That's because GE has announced a number of strategic initiatives to grow in this area. For example, last November GE began a partnership with CSX , one of the biggest freight rail operators in the United States, to explore the use of liquefied natural gas as fuel for locomotives.
CSX management believes the potential of LNG is just as promising to the railroad industry as the switch from coal to diesel fuel several decades ago. GE's NextFuel kits will allow rail freight operators to use LNG, which will cut emissions and costs. GE and CSX will begin testing the kits later this year.
Continued investment will provide future growth
More recently, GE revealed it will purchase the reciprocating compression division from Cameron International for $550 million. That division provides compression equipment for oil and gas production, gas processing, and distribution. The segment generated $355 million in sales in 2012, and the transaction is expected to close later this year.
Again, this deal enhances GE's objective of expanding its oil and gas presence. Cameron's compression division will fit very well with GE's existing portfolio in shale development, as well as in gas production, processing, and distribution. Recently, GE formed a downstream technology solutions business under its oil and gas umbrella, and this deal will allow GE to better serve its refining and petrochemical customers.
General Electric: An energy giant coming soon
GE has a growing presence across the globe and its worldwide reach is truly impressive. GE generates $1 billion or more in revenue from 24 countries. As the global economy advances, the need for complex energy solutions will become more pronounced. This is particularly true in emerging markets, where rapidly growing economies have a seemingly insatiable hunger for oil and gas.
GE is in the middle of a number of promising strategic initiatives in oil and gas production, including its liquefied natural-gas partnership with CSX as well as the deal to purchase Cameron's compression division. In all, these moves will only advance GE's already sizable oil and gas business.
GE leans more heavily on its oil and gas segment now than ever before. Orders have risen from less than $1 billion in 1994 to nearly $20 billion today. As a result, you should get accustomed to GE being a true energy powerhouse.
Not an investor yet? GE and our Essential Guide are great starting points
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal-finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.
The article General Electric is On its Way to Becoming an Energy Powerhouse originally appeared on Fool.com.Bob Ciura has no position in any stocks mentioned. The Motley Fool owns shares of CSX and General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.