GE says Clean Energy Bets Pay Offby Laura Mandaro
MarketWatch, May 25, 2007
SAN FRANCISCO (MarketWatch) -- For General Electric. Co., can green energy lead to green dollars -- and a consistently green ticker?
The Fairfield, Conn., conglomerate says it's already reaping benefits from a two-year push into energy-efficient equipment and technology. It reeled in $12 billion in sales last year of what it calls its "ecomagination" products, which include wind turbines, super-efficient jet engines and long-lasting lightbulbs.
"Green is green," GE Chief Executive Jeff Immelt told an audience in Los Angeles. "This is about a hard-nosed business initiative," not a soft touch to mollify critics chiding the company for its environmental policies, he added.
Faster-growing units, such as GE's energy-infrastructure practice, are hiring thousands of engineers and rolling out hundreds of new products, including the recent debut of a hybrid freight-train locomotive. Power-hungry China and India beckon.
"I think this stuff has real potential, and they're off to a good start, and that's why we continue to own the stock," said Mike McGarr, a portfolio manager and analyst for Becker Capital Management in Portland, Ore., which owns 900,000 shares of General Electric.
Now Wall Street is waiting for the revenue from some of these fast and fresh business lines to translate into market gains. Shares in the second-largest U.S. company by market capitalization have failed to climb above $40 since 2002 and are up less than 1% since the beginning of the year. On Friday they traded 8 cents higher at $37.41.
The stock's performance has prompted calls by some analysts to split apart the company. See Ratings Game.
The market appears to be awaiting the outcome of this transitional period, when GE is selling some of its laggard business lines and ramping up investment in new markets, said McGarr.
"Investors will want to look at the numbers. They will want to see those hybrid locomotives selling," he said.
The benefits of being green
Meanwhile, GE is intent on flagging its recent success in business lines that combine GE's established presence in heavy industry -- it ranks among the world's three biggest makers of commercial jet engines -- and the demands of energy conservation.
On Thursday it said sales of products that cut carbon emissions and energy generated $12 billion in revenue last year, about 7% of the year's total sales, up 20% from 2005.
Revenues from GE's "ecomagination" products could amount to 10% by the end of this year, McGarr predicted.
At the same time, the company is selling off slower-growth businesses such as plastics. It inked a deal Monday to sell its $6.6 billion plastics unit to Saudi Basic Industries Corp. See full story.
"GE [is] looking to execute better and invest more this year to set up an even stronger year in 2008," said Prudential Equity Group analyst Nicholas Heymann in a note to investors. He rates the stock overweight.
GE, which has its hands in industries ranging from TV shows to credit cards, has focused a chunk of its research, hiring plans and executive talking points for the last two years on the belief there will be long-lasting demand for products that cut down on fossil-fuel use and its harmful byproducts.
"This is a game where the bets we're making are in the billions," John Krenicki, chief executive of the company's energy operations, said in an interview.
By 2010, GE wants to make $20 billion in sales of energy-efficient, environmentally friendly products and funnel $1.5 billion a year into related research.
General Electric showcased some of its efforts during an event Thursday at Universal Studios, part of GE subsidiary NBC Universal. That Los Angeles event advertised appearances from a list of blue-chip companies that are working with GE on alternative energy. They included energy giant BP, Wal-Mart Stores Inc. and railroad operator Union Pacific Corp. -- as well as Gov. Arnold Schwarzenegger of California.
Krenicki's division has seen one market -- wind energy -- blossom since GE carved out a piece of it five years ago. Wind-turbine sales will likely top $4 billion this year, and Krenicki said he expects sales to increase about $1 billion a year for the next 10 years.
"We're very bullish on the capability of technology," he said in an interview.
GE is hiring thousands of engineers for Krenicki's 35,000-strong division. He said he hasn't seen the division running so hot since the late 1990s, when GE tapped into surging turbine demand at new natural-gas-fired power plants.
Policy is key driver
Continued success in the burgeoning clean-energy field hinges on whether public concern over climate change and soaring oil prices translates into public policy that rewards companies that cut down on fossil fuels and harmful emissions.
Building more wind farms, Krenicki noted, has long been tied to tax breaks and subsidies. But coal-fired power plants have been slow to install gasification technology to reduce emissions because it costs more and there is no national restriction on carbon-dioxide emissions. See related story on coal.
There are currently only two such plants, with seven in planning stages -- compared with more than 1,000 traditional coal-fired plants in the United States.
"Governments will have to step in and support the development of new technology," Krenicki said.
Not surprisingly, GE supports a national standard on carbon-dioxide emissions.
Among other ventures, GE unveiled investments in hydroelectric power, wind farms and sale of light-emitting-diode lightbulbs that use much less energy than the incandescent bulb created by GE founder Thomas Edison.
Wal-Mart said more than 500 of its U.S. stores will be using LEDs from GE to illuminate their refrigerated display cases. See related story.
And GE and BP announced they will jointly develop technology for at least five power plants designed to reduce greenhouse-gas emissions from electricity generation.
"What intrigues me is going right to China and India with these technologies in a different format," said Immelt during a presentation. The company stands to double or triple its current "ecomagination" sales in those two countries, he said. If it does that, "we can blow the lid off," Immelt said.
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