EBOOM CAPITAL: Big Business in Big Energy Cost Savings

Empire State Building retrofit will reduce energy use by 38 percent a year.

Your grandfather told you that a penny saved was a penny earned. Today we are featuring a handful of very large companies that have earned hundreds of millions of dollars by saving their customers equally huge amounts on energy costs: Honeywell International Inc. (NYSE: HON), Johnson Controls Inc. (NYSE: JCI), Siemens AG (NYSE: SI), Constellation Energy Group, Inc. (NYSE: CEG), Chevron Corp. (NYSE: CVX).

Buildings are the low-hanging fruit of energy conservation. U.S. Department of Energy statistics point to a 40-40-40 proposition: Buildings account for about 40 percent of U.S. energy consumption, more than any other sector of the economy; retrofitting buildings with existing technologies and products would reduce energy use in homes and buildings by up to 40 percent; and these upgrades would cut energy bills by $40 billion annually.

Investors looking to participate in this critical -- and profitable -- business by buying shares in these companies need to understand that these are not pure-play situations. In fact, the companies on this list that are most focused on energy efficiency of buildings generate less than 40 percent of their revenues from this activity. The least focused companies on this list generate less than 1 percent from this activity. 

Nevertheless, a small piece of a huge pie can be quite a mouthful.

Honeywell International Inc., a multinational based in Morris Town, New Jersey, reported pre-tax income of $401 million on sales of $3.24 billion from its automation and control solutions business during Q2 2010 (ending June 30, 2010), which includes its building efficiency activities. The company’s total Q2 sales were $8.16 billion.

Automation and control solutions is Honeywell’s largest business segment and the company’s website proclaims: “By immediately and comprehensively adopting existing Honeywell technologies, the United States could reduce energy consumption by 20-25 percent.” The company claims it has helped 2,000 customers around the world realize more than $2 billion in energy savings. 

The company’s other business segments are aerospace, specialty materials and transportation systems. Aerospace is the most profitable, earning $443 million (before tax) on sales of $2.65 billion during Q2.

Johnson Controls Inc., a multinational based in Milwaukee, Wisconsin, reported pre-tax income of $190 million on sales of $3.22 billion from its building efficiency business during Q2 2010 (ended June 30, 2010). Overall company Q2 pre-tax income was $457 million and net income was $418 million on total sales of $8.54 billion. 

The company says its heating, ventilation, air-conditioning, refrigeration and security systems for buildings have reduced carbon dioxide emissions by 13.6 million metric tons and generated savings of $7.5 billion since 2000. 

The company’s other business segments, automative and power solutions, earned (pre-tax) $171 million on sales of $4.21 billion and $135 million on sales of $1.11 billion respectively.

As an example of its projects, Johnson Controls cites a retrofit of the Empire State Building in New York City that will reduce the building’s energy use by 38 percent a year and place it in the top 10 percent of all U.S. office buildings in terms of energy efficiency.

Siemens AG, a multinational based in Munich, German, reported pre-tax income of 93 million Euros ($127.4 million) on sales of $1.83 billion Euros ($2.51 billion) from its business techologies division for Q3 2010 (ended June 30, 2010). Total company net income was 1.43 billion Euros ($1.96 billion) on total revenue of 20.87 billion Euros ($28.6 billion). 

Siemens says its building efficiency systems coordinate heating, cooling, lighting, windows and energy distribution to bring energy and productivity savings of up to 40 percent.

Building technologies is one of six divisions in Siemens’ industry sector, which contributed 8.72 billion Euros ($11.95 billion) of revenue. The other sectors are energy and healthcare. (Siemens is a leading builder of wind turbines and, in particular, dominates the booming offshore Europe wind energy business with 50.5 percent of the installed capacity, compared with second-place Vestas Wind.)

Constellation Energy Group, Inc., based in Baltimore, Maryland, gives little useful financial information about its building efficiency business.  The only non-multinational company on this list, Constellation Energy is a generator and reseller of electricity and natural gas and reports total net income of $83.8 million on total revenue of $3.31 billion in its Q2 2010 (ending June 30, 2010) financial results. The company also owns and operates nuclear power plants in a joint venture with EDF Energies Nouvelles (Paris: EEN.PA).

Constellation Energy’s building efficiency business is included in its “new energy” segment, which recorded a net loss of $46.1 million on revenues of $2.27 billion during Q2 2010. This segment includes sales of electricity and natural gas, risk management services, energy commodity trading, exploration and production of natural gas, and finally: “sales of home improvements, servicing of electric and gas appliances, and heating, air conditioning, plumbing, electrical, and indoor air quality systems.”  

As examples of its building retrofit projects, the company cites a $22 million project for a diversified industrial company that brought energy savings of $5.7 million per year from heating and lighting upgrades and a $5.6 million project for a global company with multiple brands that netted energy savings of $2.5 million per year from upgrades to lighting, heating and energy control systems that also included a cost-saving commodity arrangement.

Chevron Corp. also reports very little useful financial information about its energy efficiency division, called Chevron Energy Solutions, except that it is minuscule compare to its mainstream oil business. In the company’s Q2 2010 (ended June 30, 2010) financial results, Chevron Energy Solutions is lumped in with renewable energy, real estate services, insurance services and other sidelines into “all other revenue” which comprises a total of $300 million of revenue compared with Q2 2010 total revenue of more than $53 billion.  

The company boasts the largest solar and energy efficiency project at a K-12 school district in the U.S. and the largest solar and energy efficiency project in higher education in North America, plus many others. 

As an example of its building retrofit business, the company cites a project with the City of Brea in Orange County, California, in which 1.8 megawwats of solar panels are being installed on several city-owned buildings, street lighting throughout the city will be upgraded, and improvements to heating, ventillation, cooling and controls will save the city more than $13 million in reduced energy costs over the life of the project.

Photo credit: Johnson Controls Inc.

DISCLOSURE: The writer has no positions in, or professional connections with, these companies.