By Ted Mann And Chelsey Dulaney
General Electric Co.'s oil and gas business managed to blunt the
hit from plunging prices of crude but the company is braced for
deepening trouble in the year ahead.
In the final three months of 2014, orders fell 10% in GE's oil
and gas business, including a 72% decline in requests for such
drilling equipment as blowout preventers. The company said it
hasn't yet had to negotiate lower prices for its backlog of orders.
But customers are starting to call, as they look to curtail
projects, lay off workers and trim costs.
"That's to come in 2015," Chief Financial Officer Jeff Bornstein
said.
For the past decade, GE Chief Executive Jeff Immelt has built up
a sizable oil and gas operation, which accounted for about 17% of
its industrial revenue last year. Plunging oil prices have led GE
executives to warn of a drop in both revenues and profits this year
at the formerly fast-growing unit.
Mr. Immelt said he had received some initial letters about the
pricing of previously booked orders for GE's roster of equipment
for land-based and offshore oil exploration and production, though
so far the company hasn't faced an onslaught of demands for a drop
in prices. "This is early days," he said.
The revenue decline in its oil and gas business for the quarter
was offset by better results in other parts of its industrial
portfolio, such as jet engines, power-generation equipment and
locomotives.
Industrial revenue growth of 6% comes as the company continues a
multiyear effort to wean itself off earnings from its massive
financial arm, GE Capital, and back to a focus on its heavy
industrial core.
For the quarter ended Dec. 31, GE's earnings rose to $5.15
billion from $3.21 billion. Revenue climbed 4% to $42 billion.
Shares of GE were up 2% midday to $24.76.
Meanwhile, work continues on GE's biggest priorities for the
year: completing the $17 billion purchase of the energy assets of
Alstom SA, and splitting off GE Capital's consumer finance
business, Synchrony Financial, as one of the largest steps toward
reducing the size of the lending arm.
Mr. Bornstein confirmed that GE has agreed to pay more for
Alstom's energy businesses, pegging the additional cost at roughly
$280 million. That cost includes extending the term of GE's
licensing deal to use the Alstom brand to 25 years from an
originally anticipated five years.
Alstom CEO Patrick Kron has said GE will contribute about the
equivalent of $450 million in "additional proceeds" as part of the
negotiations after the deal, and Mr. Bornstein said the difference
between the two figures can be explained in part because Alstom is
counting roughly $112 million of potential interest charges it
would have paid on cash GE allowed the cash-starved French company
to use last year.
GE hopes to close the Alstom deal on July 1, Mr. Immelt
said.
GE warned investors last month that revenue and profit in its
oil and gas unit could fall as much as 5% in 2015, as the overall
industry contracts. GE officials have also said aggressive cost
reductions could be coming.
"I'm sure we'll have some of those discussions with some of our
customers just as we'll be having some of those with some of our
suppliers," Mr. Bornstein said of renegotiating some oil and gas
orders.
Company executives also believe they will be well positioned to
grow their market share in equipment and services because some of
the largest customers will continue to pump oil through the
downturn, maintaining demand for GE's products.
Write to Ted Mann at ted.mann@wsj.com and Chelsey Dulaney at
Chelsey.Dulaney@wsj.com
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