Its always good when a company raises its revenue growth forecast. This is especially true when the company is one of the world's largest. General Electric (NYSE: GE) recently raised its 2012 industrial revenue growth forecast to 10%, the high end of the previous 5-10% forecast. This news sent its stock price to levels not seen the autumn of 2008. Much of what powered that increased revenue forecast was GE's forecast of a boom in demand by power companies globally for natural gas-fired turbines as they increasingly turn to gas to provide baseload electricity.
In the past few days, the company announced $1.2 billion in new orders for 19 of its recently-developed, heavy-duty gas turbines from Saudi Arabia, Japan and the United States. General Electric has been investing heavily into its “flexefficiency” turbines and technology designed to allow rapid ramp up and ramp down in power output while using gas efficiently. GE has developed technology for both 50 hertz and 60 hertz, the two main frequencies for power grids around the globe. It has placed a big bet on natural gas and its future in the past few years, including acquisitions worth $11 billion in 2010-11. Now it looks as if that bet is just beginning to pay off.
Among the clients buying the GE turbines here in the United States are Hess Corporation, Xcel Energy (NYSE: XEL) and an unnamed industrial client. General Electric is supplying two gas turbines to the Cherokee Clean Air Clean Jobs Project in Denver, Colorado which will convert an existing coal power plant into a cleaner burning natural gas combined-cycle facility. Carbon dioxide emissions are expected to be lowered by half. The new plant will be owned and operated by Public Service Company of Colorado, a subsidiary of Xcel Energy.
General Electric is not alone in its belief in the bright future for gas turbine power. Its major competitor in the sector, Germany's Siemens AG ADR (NYSE: SI), also thinks along the same lines. Earlier this year, Siemens announced it had earmarked more than $1.3 billion to expand production of gas turbines and hopefully fend off GE as they jostle for top spot in the sector. This division is the largest of the German company's 10 main divisions, accounting for about 14 percent of the company's revenues last year.
In recent years, Siemens has almost doubled its market share to 40% in the large turbine segment for power exceeding 100 megawatts. It also currently has the at least 10-unit-a-year market to itself as GE and Japan's Mitsuibishi Heavy Industries (NASDAQOTH: MHVYF.PK) are still developing their offerings for that segment of the market.
Another competitor of GE and Siemens in the turbine market is France's Alstom SA ADR (NASDAQOTH: ALSMY.PK), but it is more focused on the steam turbine market. However, even Alstom has launched its upgraded GT24 gas turbine and KA24 combined-cycle power plant which the firm says is a response to the increasing demand for gas-fired power generation around the world.
The upturn in gas turbine business for GE, Siemens and the rest is being driven by four factors: the global shale boom which is making natural gas cheap and plentiful, fast-growing power needs in the emerging economies, concerns about nuclear energy in the wake of the Fukushima disaster and stricter emissions rules in the United States.
Environmental regulations alone will lead to roughly half of all U.S. coal power plants being upgraded or replaced in the next decade. General Electric itself forecasts that more U.S. power plants will be fueled with natural gas rather than with coal by 2017. As for the emerging world, as shale gas deposits are developed in China and elsewhere, the markets for gas turbines will expand even further. This bodes well for Siemens and GE, as it moves back toward to its industrial roots and away from financial services in the years ahead.
This article originally appeared on the Motley Fool Blog Network. Make sure to read all my articles for the Motley Fool at http://beta.fool.com/tdalmoe/.
Monday, October 15, 2012
Wednesday, October 10, 2012
US Consumers Shifting to Smaller Cars
The preliminary figures for vehicle sales in September are out and they were not as good as the August numbers. Sales were flat for Ford Motor (NYSE: F) and sales at General Motors (NYSE: GM) were only up 1.5%. Sales at Chrysler, majority-owned by Italy's Fiat S.p.A. ADR (NASDAQOTH: FIATY.PK), motored ahead in September at a 12% rate.
The most interesting aspect of the sales figures for Detroit's Big 3 is the fact that all three companies boasted about their fast-growing sales of smaller models of passenger cars. This is almost unheard of in the United States, famous for its gas-guzzling SUVs and pickups.
General Motors said its sales of mini, small and compact cars were up 97% from the year ago period. Ford reported small car sales jumped 73% from a year ago, to a record for the past 10 years. Meanwhile, Chrysler's Dodge Dart sales rose 72% from August and sales of the Fiat 500 subcompact climbed 51% year-on-year.
These sales reports are outstanding. But does it represent the beginning of a long-term trend? Thanks to high fuel prices, is America finally moving away from driving gas guzzlers?
If so, the Big 3 automakers will have to learn to adjust. After all, with smaller cars you have smaller profit margins. That is why they largely abandoned the field to foreign competitors, concentrating instead of high-margin larger vehicles.
One way the automakers are coping with possible tighter profit margins on small cars will not make most Americans happy. They are shifting production to places like Mexico. Ford makes it Fiesta model in Mexico. Fiat manufactures its Fiat 500 for the U.S. market also in Mexico. GM should be commended though. It does manufacture the Chevrolet Sonic, the smallest passenger car mass produced in the U.S., at its plant in Lake Orion, Michigan. It copes with small profit margins by trying to shorten the supply chain by moving actually moving suppliers in-plant.
Of course, one big plus that U.S. automakers have in their corner is that they have moved toward using global platforms for the production of many of their vehicles. That is, auto manufacturers build many vehicle models atop the same architecture. So Chevy's Sonic is built on the same platform as Opel in Europe and Ford's Fiesta is built on the same platform as vehicles in Europe. This is a real cost saver in the long run for automakers.
But the question still remains whether U.S. consumers are ready to switch to smaller vehicles permanently. The answer is probably as it has always been in the past . . . no. As soon as the price of fuel starts falling again (if it ever does), Americans will rush back into driving their favorite gas guzzlers.
Right now, according to Edmonds.com, compact and subcompact cars account for 21.5% of the U.S. car market versus 24.6% for SUVs. The two numbers will likely only reverse if gasoline climbs to over $4 a gallon and stays there.
This article originally appeared on the Motley Fool Blog Network. Be sure read all of my articles for the Motley Fool at http://beta.fool.com/tdalmoe/.
The most interesting aspect of the sales figures for Detroit's Big 3 is the fact that all three companies boasted about their fast-growing sales of smaller models of passenger cars. This is almost unheard of in the United States, famous for its gas-guzzling SUVs and pickups.
General Motors said its sales of mini, small and compact cars were up 97% from the year ago period. Ford reported small car sales jumped 73% from a year ago, to a record for the past 10 years. Meanwhile, Chrysler's Dodge Dart sales rose 72% from August and sales of the Fiat 500 subcompact climbed 51% year-on-year.
These sales reports are outstanding. But does it represent the beginning of a long-term trend? Thanks to high fuel prices, is America finally moving away from driving gas guzzlers?
If so, the Big 3 automakers will have to learn to adjust. After all, with smaller cars you have smaller profit margins. That is why they largely abandoned the field to foreign competitors, concentrating instead of high-margin larger vehicles.
One way the automakers are coping with possible tighter profit margins on small cars will not make most Americans happy. They are shifting production to places like Mexico. Ford makes it Fiesta model in Mexico. Fiat manufactures its Fiat 500 for the U.S. market also in Mexico. GM should be commended though. It does manufacture the Chevrolet Sonic, the smallest passenger car mass produced in the U.S., at its plant in Lake Orion, Michigan. It copes with small profit margins by trying to shorten the supply chain by moving actually moving suppliers in-plant.
Of course, one big plus that U.S. automakers have in their corner is that they have moved toward using global platforms for the production of many of their vehicles. That is, auto manufacturers build many vehicle models atop the same architecture. So Chevy's Sonic is built on the same platform as Opel in Europe and Ford's Fiesta is built on the same platform as vehicles in Europe. This is a real cost saver in the long run for automakers.
But the question still remains whether U.S. consumers are ready to switch to smaller vehicles permanently. The answer is probably as it has always been in the past . . . no. As soon as the price of fuel starts falling again (if it ever does), Americans will rush back into driving their favorite gas guzzlers.
Right now, according to Edmonds.com, compact and subcompact cars account for 21.5% of the U.S. car market versus 24.6% for SUVs. The two numbers will likely only reverse if gasoline climbs to over $4 a gallon and stays there.
This article originally appeared on the Motley Fool Blog Network. Be sure read all of my articles for the Motley Fool at http://beta.fool.com/tdalmoe/.
Wednesday, October 3, 2012
US Railroads: Great Plays on Shale
The boom in US shale gas and oil is now a fact of life for investors. But the best way to play that boom is not directly through oil and gas companies. Look at how many of them have suffered thanks to an excess of supply and the resulting plunging prices for both natural gas and natural gas liquids (NGLs).
The best way to play shale is from owning the beneficiaries of low gas prices – petrochemical companies – and the beneficiaries of transporting shale oil across North America – the railroad industry.
The fact is that increased oil production, from both Canada and North Dakota, have nearly overwhelmed the existing transportation system in that part of North America. Drilling techniques such as hydraulic fracturing have increased oil production in North Dakota sevenfold to more than 600,000 barrels a day, moving the state to second behind only Texas in U.S. oil production. The U.S. Energy Information Administration forecasts production there will surpass 1 one million barrels a day next year. Even in Canada, oil production is expected to top 4.1 million barrels of oil a day next year, up from just 3 million barrels a day in 2005.
The drilling in areas like North Dakota is occurring in a region with few refineries and a limited pipeline network. So that leaves one alternative to transporting the oil taken out of the ground in North Dakota – railroads. According to the Association of American Railroads, overall U.S. rail shipments of oil have almost quadrupled to 88,026 rail car loads in the first half of 2012 from only 22,714 in the first half of last year. In 2008, there were less than 10,000 carloads annually.
The key here for investors is that this is not a blip, but part of a long-term trend. Just take a look at what two of the country's major refining companies – Tesoro (NYSE: TSO) and Phillips 66 (NYSE: PSX) have done in recent months. Tesoro this month will complete a rail facility at its west coast refinery in Washington to receive Bakken crude from North Dakota from 800 rail cars it had ordered previously. In June, Phillips 66 ordered 2,000 rail cars at a cost of $200 million to transport shale oil from North Dakota fields to its refineries.
All of this is great news for the railroads and should bring smiles to the faces of shareholders in railroads including CSX (NYSE: CSX), Canadian Pacific (NYSE: CP) and BNSF, which is now owned by Warren Buffett's Berkhsire Hathaway (NYSE: BRK-B). Canadian Pacific, for example, recently told attendees at an investor conference that the company expected oil shipments it carries to rise from 13,000 carloads last year to leap to at least 70,000 carloads sometime in 2013.
Burlington Northern SantaFe (BNSF) is a particular beneficiary of the Bakken shale oil boom since it carries 44 percent of the region's oil exports. It has built terminals along its routes throughout the region which are capable of handling 1 million barrels of oil a day, well above the current 290,000 barrels a day it handles. The company expects that, even after planned pipelines are built, that it will still handle between 25 and 37 percent of the Bakken's oil exports.
Of course, it's not all gravy for the railroad companies. Take CSX, for instance. The shale boom has hit the coal industry hard and therefore coal shipments are down sharply. CSX coal shipments were down 28 percent in the first quarter of 2012, though earnings were up marginally. Coal has traditionally accounted for 20-25 percent of of traffic for big rail companies like CSX.
So the question remains whether transporting oil from the Bakken and elsewhere – after a large investment into tank cars which CSX CFO Frederik Eliasson calls a “risk” - will offset the decline in railroads' coal business. For now, the railroads think the answer is yes. They are planning to at least triple capacity to move oil in the months and years ahead. With cheaper domestic crude oil from the Bakken luring the refineries to use cheaper domestic oil instead of expensive imported crude oil, the railroads seem to be sitting in the perfect spot as the transporter of that oil.
This article originally appeared on the Motley Fool Blog Network. Make sure to read all of my articles for the Motley Fool at http://beta.fool.com/tdalmoe/
The best way to play shale is from owning the beneficiaries of low gas prices – petrochemical companies – and the beneficiaries of transporting shale oil across North America – the railroad industry.
The fact is that increased oil production, from both Canada and North Dakota, have nearly overwhelmed the existing transportation system in that part of North America. Drilling techniques such as hydraulic fracturing have increased oil production in North Dakota sevenfold to more than 600,000 barrels a day, moving the state to second behind only Texas in U.S. oil production. The U.S. Energy Information Administration forecasts production there will surpass 1 one million barrels a day next year. Even in Canada, oil production is expected to top 4.1 million barrels of oil a day next year, up from just 3 million barrels a day in 2005.
The drilling in areas like North Dakota is occurring in a region with few refineries and a limited pipeline network. So that leaves one alternative to transporting the oil taken out of the ground in North Dakota – railroads. According to the Association of American Railroads, overall U.S. rail shipments of oil have almost quadrupled to 88,026 rail car loads in the first half of 2012 from only 22,714 in the first half of last year. In 2008, there were less than 10,000 carloads annually.
The key here for investors is that this is not a blip, but part of a long-term trend. Just take a look at what two of the country's major refining companies – Tesoro (NYSE: TSO) and Phillips 66 (NYSE: PSX) have done in recent months. Tesoro this month will complete a rail facility at its west coast refinery in Washington to receive Bakken crude from North Dakota from 800 rail cars it had ordered previously. In June, Phillips 66 ordered 2,000 rail cars at a cost of $200 million to transport shale oil from North Dakota fields to its refineries.
All of this is great news for the railroads and should bring smiles to the faces of shareholders in railroads including CSX (NYSE: CSX), Canadian Pacific (NYSE: CP) and BNSF, which is now owned by Warren Buffett's Berkhsire Hathaway (NYSE: BRK-B). Canadian Pacific, for example, recently told attendees at an investor conference that the company expected oil shipments it carries to rise from 13,000 carloads last year to leap to at least 70,000 carloads sometime in 2013.
Burlington Northern SantaFe (BNSF) is a particular beneficiary of the Bakken shale oil boom since it carries 44 percent of the region's oil exports. It has built terminals along its routes throughout the region which are capable of handling 1 million barrels of oil a day, well above the current 290,000 barrels a day it handles. The company expects that, even after planned pipelines are built, that it will still handle between 25 and 37 percent of the Bakken's oil exports.
Of course, it's not all gravy for the railroad companies. Take CSX, for instance. The shale boom has hit the coal industry hard and therefore coal shipments are down sharply. CSX coal shipments were down 28 percent in the first quarter of 2012, though earnings were up marginally. Coal has traditionally accounted for 20-25 percent of of traffic for big rail companies like CSX.
So the question remains whether transporting oil from the Bakken and elsewhere – after a large investment into tank cars which CSX CFO Frederik Eliasson calls a “risk” - will offset the decline in railroads' coal business. For now, the railroads think the answer is yes. They are planning to at least triple capacity to move oil in the months and years ahead. With cheaper domestic crude oil from the Bakken luring the refineries to use cheaper domestic oil instead of expensive imported crude oil, the railroads seem to be sitting in the perfect spot as the transporter of that oil.
This article originally appeared on the Motley Fool Blog Network. Make sure to read all of my articles for the Motley Fool at http://beta.fool.com/tdalmoe/
Subscribe to:
Posts (Atom)
Posts
