Will it Consistently Be More than Dust in the Wind for GE's Wind Energy Initiatives?
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Many small and large cap companies have initiatives and capital investments in the wind energy industry. All are investing in a sector that has noteworthy ideals and strategic plans for success. The wind energy industry is still feeling its way through an environment getting more and more crowded with alternative energy enterprises.
General Electric Company (NYSE: GE) has, among their other divisions, their Power & Water operations. The Company, through this division, works in renewable resources including wind and solar; biogas and alternative fuels; as well as coal, oil, natural gas and nuclear energy. Power & Water is GE's largest industrial business.
Concerning projects related to wind farms, this month, it was announced that GE would install their WindCONTROL advanced software to help maximize energy output at two First Wind projects in Maine. The software automatically controls the output of each wind turbine in the wind farm. This is in contrast to an approach that depends on starting and stopping units to meet a power demand.
First Wind is a Boston-Massachusetts-based independent wind energy company, which owns and operates turbines throughout the U.S. These wind projects in Maine feature 95 GE wind turbines.
WindCONTROL is one of numerous software and controls upgrades provided by GE's wind services business. In addition, it is part of the company's broader Industrial Internet solution portfolio. GE wind services additionally provide solutions to customers via advanced software products such as WindBoost, Turbine Performance Optimization, Winter Ice Operation Mode and PulsePOINT.
Last week, GE announced fourth-quarter 2012 operating earnings of $4.7 billion, or $0.44 per share, both up 13 percent from the fourth quarter of 2011. GAAP earnings from continuing operations were $4.3 billion, or $0.41 per share, up 9 percent and 11 percent respectively. The company's revenue was $39.3 billion for the quarter, up 4 percent, and $147.4 billion for the year. Industrial segment organic revenue growth was 4 percent for the quarter and 8 percent for the year.
GE experienced double-digit earnings growth for five of seven Industrial segments. Industrial segment profit rose 12 percent in the fourth quarter to $4.9 billion. All Industrial segments had positive earnings growth for the second consecutive quarter. For investors, this profit growth is a signal that, for the most part, effective cost control measures are in place within the company along with the proper pricing of products and services. Investors should look at companies who make a commitment to controlling expenses, while innovating, especially in today's business environment.
Moreover, Infrastructure orders for the quarter were $28.5 billion, up 2 percent, and up 7 percent excluding the effects of a decrease in orders for wind turbines, and FX. However, GE announced a contract with Renova Energia in Brazil worth $0.4 billion for 230 GE 1.68-82.5 wind turbines.
Investors who wish to explore the turbulent equity environment of alternative energy may want to research major corporations such as GE who have a foundation of other divisions that drive the company forward as they continue to develop their Power & Water operations.
GE is focusing on the next generation of wind turbines. They are one of the globe's foremost wind turbine suppliers. Their GE Energy current product family includes wind turbines with rated capacities ranging from 1.5 MW to 4.1 MW. GE also has support services ranging from development assistance to operation and maintenance.
It's wise for investors to consider blue chip companies with a long history of research and development in diverse sectors. GE is one of those companies. For conservative investors desiring to ride the breeze somewhat in the wind energy industry, a company like GE may be the route to take. Their exposure in the industry has the strong foundation of the rest of the company's divisions as a safety net.
Moreover, investors may wish to look into companies that provide an extensive portfolio of generators, electric drives and control systems for wind turbine systems. Siemens AG (NYSE: SI) is one such company. Their market-specific solutions include Wind Equipment. The company's product line-up includes electrical components and solutions for the complete wind turbine system. This is from power generation, through integrated automation and power distribution through to communication.
Now Siemens also has that safety net of diversity that many shareholders love. Their product groups include Automation, Building Technologies, Communication Networks, Energy, Drive Technology, Healthcare, Financial Solutions, Lighting (OSRAM), Mobility and Consumer Products. However, they took a hit in Q1 2013 earnings (a 12 percent decline in the October-December quarter) after they took charges at their transport business and a solar power operation the company is selling. They reported net earnings of €1.21 billion ($1.6 billion) in their fiscal first quarter. This is down from €1.38 billion a year prior. Their revenue climbed 2 percent to €18.13 billion. They did experience a 3 percent drop in orders to €19.14 billion.
Nevertheless, Siemens said they would sell their solar business. They will concentrate their renewable energy initiatives on wind and water power. Therefore, they do see value in capital expenditures in the wind energy industry. So, investors have to look at this strategy from a major NYSE company that's advancing their wind energy industry program. They obviously see return circulating downwind that they wish to capture. Investors lacking knowledge in the wind industry can gain more insight from what a major player like Siemens is investing in.
In addition, MasTec (NYSE: MTZ) may suit your wind energy investing style. They have expertise in electrical transmission power systems. Overall, MasTec is an infrastructure construction company. They're involved in engineering, building, installing, maintaining, and upgrading energy, communication, and utility infrastructure in North America. Renewable Energy is one component of this multi-faceted enterprise. For wind energy, they are one of the country's leading contractors for the construction and engineering of wind farms.
In November 2012, they reported their third quarter financial results. The company had significantly improved continuing operations earnings and cash flow from operations. Their third quarter revenue was at record levels; it surpassed $1 billion in a quarter for the first time. Quarterly revenue was up 31 percent and was all organic growth. They had quarterly continuing operations adjusted EPS of 53 cents (up 51 percent). Quarterly continuing operations adjusted EBITDA was $101 million (up 31 percent). Quarterly cash flow from operations was $119 million.
Looking at all this, an investment in a company like MasTec that's a contractor and builds wind farms may just be that gentle breeze an investor needs to ally the sweat on the brow that can come to the surface when considering companies whose sole business is wind energy. They can more easily sustain economic gusts that could possibly knock down wind energy companies that don't have the resources, desire or know-how to diversify.
However, despite all the excitement and hype concerning wind energy, an investor must look at all sides of the debate concerning the industry. There is heightened risk in an industry still unproven as concerns sustainable, significant profits. Investors must look at this industry as applies to its ability, or lack thereof, in making a substantial contribution to the massive energy needs of national infrastructure, business & industry and an array of municipalities.
Consider the concerns of the Industrial Wind Action Group and others who investigate the wind energy industry. This Group established to counteract what they believe is the misleading information circulated by the wind energy industry and different environmental groups. Support for their effort comes from a varied and large group of energy experts, environmentalists, as well as ordinary citizens.
On their website at http://www.windaction.org/quotes are comments that address their wind energy industry concerns. There are environmental concerns and concerns about profitable, substantial commercial production actually being feasible in this industry.
Sometimes, as investors, we don't want to dwell on the negative. Nevertheless, it's best to research any industry carefully before plunking down disposable income on a stock. Look at one quote from their site – among a host posted therein - then form your own opinions via proper due diligence:
[Wind power] is, like so many other strange environmental ideas, a fantasy, a delusion that sounds rational right up to the moment you begin to look at it closely. When you do that, the vision of hundreds of wind towers producing miniscule amounts of electricity-and only when the wind is blowing-seems, well, nuts!
Opportunities do exist for ROI from the major companies putting their fingers in the air to test for profitable prevailing winds in the sector. Nevertheless, to me there's the lingering doubt that tells me to be wary of investments in companies that are too heavily exposed in this industry, or who do not have the security of diversification in their business model – diversification in sectors that have nothing to do with wind power.
I'm basing all of this on the enormous energy demands that wind power may never be able to accommodate. Can the industry, on a regular basis, profitably provide the wind energy that business, governments, consumers and industry demand? I sometimes wonder if those big wind towers will, metaphorically speaking, come crashing down and leave any potential profits as miniscule amounts of dust in the wind.
Fool Blogger Michael Ugulini owns shares- long- in General Electric Company (GE). The Motley Fool recommends MasTec. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!