General Electric’s (NYSE:GE) operating segment, GE Transportation, recently secured orders for 50 new locomotives from the Mexican and US rail subsidiaries of Kansas City Southern (NYSE:KSU). Notably, these locomotives are expected to be delivered by GE Transportation in 2019. Also, GE Transportation will offer digital solutions that would improve fuel and operational efficiency.
With an increase in freight volume and improving North American rail market, the advanced locomotives will allow Kansas City Southern to boost operational efficiencies across its rail network. This will alsoenable Kansas City Southernto continue with the modernization of its locomotive fleet.
Notably, the latest order comprises General Electric’sTier 4 Evolution Series locomotives, Trip Optimizer System as well as Distributed Power LOCOTROL technologies. These technology solutions will help in the optimization of power distribution, brake control, train handling as well as fuel utilization.
These new locomotives are to be produced at the GE Manufacturing Solutions facility, located in Fort Worth, with the first units likely to be delivered early next year.
Existing Business Scenario
GE Power is the largest business segment of General Electricin terms of corporate revenues. However, the business has been a drag on earnings over the last few quarters. This is because global demand started to decline with increasing popularity of renewable energy sources, overcapacity, lower utilization and fewer outages.
Also, in a bid to focus more on its core business activities, the company has exited from the financial business and has increased its investments in key industrial businesses through restructuring, state-of-the-art technology and research & development initiatives.
In the past six months, General Electric has underperformed the industry it belongs to. The stock has lost 24.6% compared with the industry’s 12% decline.
Moving ahead, the company intends to focus on three core segments — power, aviation and healthcare equipment — which require advanced hi-tech products with a high degree of reliability. These products might expand margins and are likely to contribute to long-term growth, thus driving shares.
Currently, the company has a Zacks Rank #5 (Strong Sell).
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