GE oil business seeks to outpace market, improve margins

Sun Sep 7, 2014 1:40am EDT
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By Lewis Krauskopf

NEW YORK (Reuters) - General Electric Co's fast-growing oil and gas business that supplies equipment and services is improving profit margins and is well-placed to outpace industry growth over the next several years, a top unit executive said in an interview.

Spurred by $14 billion in acquisitions since 2007, the oil division's revenue has risen 75 percent to $17 billion since 2009, making it the U.S. conglomerate's fastest-growing industrial business in that period.

But its 12.8 percent profit margin last year trailed by several percentage points GE's other major industrial businesses, such as aviation and healthcare, and GE Chief Executive Jeff Immelt is seeking to improve the company's overall industrial margin from 15.7 percent last year to 17 percent by 2016.

The unit's profitability is likely to be a prime topic for analysts and investors on Wednesday, when GE holds a half-day presentation in New York on its oil and gas business.

"We're driving profitability up for this business as we look into the '14 time frame and as we look into the strategic plan we lay out for the next three years," said Rafael Santana, president of GE's turbomachinery solutions division, the largest business within oil and gas. The oil and gas unit will be a "key part" of driving toward Immelt's profit margin target for the whole company, Santana said on Friday.

To improve margins, the unit is cutting costs by becoming more productive, while trying to develop products for which it can charge a higher price.

For example, GE reduced the weight and footprint of an off-shore power generation product by 20 percent, allowing GE to charge a premium because the smaller product is more desirable to customers, Santana said.

The analyst meeting next week is the first intensive review for investors that GE has held specifically for the oil and gas sector, whose results it began reporting separately in 2012. The business offers equipment and services to oil and gas exploration companies, including oil-field pumps, sub-sea drilling equipment, compressors and wellhead bores.   Continued...

The logo of U.S. conglomerate General Electric is pictured at the company's site in Belfort, June 23, 2014. REUTERS/Vincent Kessler