This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

GE Splitting Its $50 Billion Energy Business in Three (Update 2)

Updated to include Barclays comments on management change.

NEW YORK ( TheStreet) -- General Electric (GE - Get Report) is restructuring its energy business as three standalone operations, in a move to unlock value and simplify the unit, which earns $50 billion in annual revenue.

In a statement released separate from Friday morning's second quarter earnings, GE said that it would reorganize GE Energy Infrastructure in the fourth quarter of 2012, in a move to speed up decision making, decrease operational costs and reduce management layers. Starting in 2013, each unit will report segmented earnings.

The Fairfield, Conn-based conglomerate said that its energy unit, which has approximately 100,000 employees, will be split into divisions focused on power and water, oil and gas, and energy management. The power and water unit that manufactures solutions for power and water processing plants will be the largest of the newly separated energy divisions.

"Big companies are always fighting organizational complexity. We are taking action at a time when the energy business is doing well," said GE CEO Jeffrey Immelt in a statement. "Removing layers is one way to reduce costs and increase our speed, focus and agility in the marketplace so we serve customers better," he added.

By splitting its disparate energy businesses, which serve operations ranging from shale drilling to offshore wind farms and power grids, GE is hoping to make the earnings of its businesses more apparent to investors. "This move will greatly simplify the way we communicate to investors and customers," Immelt said.

In the past few years, GE gas made a string of acquisitions in the oil service sector totaling approximately $11 billion.

Within GE's mix of energy, transportation, aviation, finance and healthcare businesses, Morgan Stanley analyst Nigel Coe noted that it was the company's soon-to-be realigned energy unit -- excluding wind turbines -- which was among the strongest performers in the second quarter. Other positive surprises came from GE's transportation unit, while aviation and healthcare earnings were lower than expected, Coe wrote in a note to clients.

In second quarter earnings, GE's combined energy businesses earned $11.9 billion in revenue, a near 15% increase from this time last year and a small increase from the first quarter. The unit also reported a second-quarter profit of $1.76 billion, an increase from the $1.52 billion it earned in the first quarter, and $1.55 billion a year earlier.

Those results beat estimates from Barclays analyst Scott Davis, who projected that GE's energy unit would earn $11.5 billion in revenue and turn a $1.7 billion profit.

Within GE's energy unit, its power and water business earns roughly $28 billion in annual revenue and is headquartered in Schenectady, NY, while its oil and gas unit, which manufactures key equipment for land and offshore drillers, is headquartered in Florence, Italy and earns roughly $15 billion in annual revenue.

GE's energy management unit is headquartered in Atlanta and it delivers conversion and optimization technologies to power grids and energy-intensive industrial companies. It earned $7 billion in 2012.

GE vice chairman John Krenicki, who is president and CEO of GE Energy, will leave the company at the end of 2012 and each of the three new energy division heads will report directly to Immelt.

Davis of Barclays said that the departure of Krenicki is puzzling given his strong reputation on Wall Street, but also wrote in a note to clients that the energy unit reorganization makes sense given the diversity of its operations and customer base.

"Segment re-org into three pieces makes sense given complexity of business and diversity of customer base within sub-segments; experienced segment heads provide continuity. The exit of a key leader near a cycle upturn will be questioned by many," wrote Davis.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
GE $26.80 0.00%
AAPL $130.28 0.00%
FB $81.53 0.00%
GOOG $565.06 0.00%
TSLA $218.42 0.00%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs