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.
Speaking to Reuters ahead of the meeting, Santana said one key message executives will convey is that GE’s oil and gas business is poised to outpace broader market growth of 6 percent to 8 percent a year.
“When we look at the industry ... we see the opportunity for us to grow beyond those numbers,” Santana said, citing the breadth of GE’s portfolio.
For 2014, Santana said, the unit is on track to reach GE’s target set in December for profit and revenue growth of at least 10 percent.
Santana said the company can “definitely drive growth organically” rather than through further acquisitions.
Asked whether GE will maintain its level of deal-making in the oil and gas sector, Santana said: “We feel very good about the portfolio we have built. But if opportunities arise, we’ll be looking.”
Reporting by Lewis Krauskopf; Editing by Alwyn Scott and Richard Chang