Earnings Preview: GE likely to post profit growth
NEW YORK (AP) — General Electric's return to its roots in manufacturing is helping profits. Investors would like to see some revenue growth, too.
GE has become more profitable as it tightened its focus on traditional operations, such as making complex industrial equipment and providing services to industrial companies. When the company reports earnings Friday, it is expected to post a 23 percent jump in earnings per share for the fourth quarter and the year.
But the company's revenue has slipped slightly in the aftermath of selling non-industrial assets like NBC Universal, parts of its banking division and parts of its commercial real estate holdings. Revenue also suffered because the world economy is growing slower than expected and, in some cases, shrinking.
GE shares fell sharply on Oct. 19 after the company announced third quarter results that began to worry investors about revenue growth. GE shares sold for $21.15 in morning trading Wednesday, down 7 percent from $22.81 on Oct. 18.
In a presentation the company made to investors in December, GE said growth in China and other emerging markets, low interest rates that allow customers to finance projects and high oil prices that were inspiring exploration were all helping it improve results. The struggling economies of Europe and Japan along with budget cuts and fiscal uncertainty that loom as the U.S. and Europe try to lower national debts are causes for concern.
Scott Davis, an analyst at Barclays, expects strong sales of GE's new jet engine, called GEnx, and strong revenue and profit growth from GE's oil and gas division. High global oil prices and strong natural gas prices outside of the U.S. are leading to increased drilling and construction of plants to process and liquefy natural gas. Health care is growing in emerging markets, but slowing in Europe and North America. Sales of appliances are lagging, but may begin to improve as home construction in the U.S. picks up.
WHY IT MATTERS: Because of its size and global reach, GE has a unique perspective on the state of economies around the world. Its financial performance is considered a bellwether. GE's industrial operations make and service a range of products; including refrigerators, CT-scanners, wind turbines and engines for jets and trains. GE Capital issues credit cards and provides loans for businesses.
WHAT'S EXPECTED: Analysts expect earnings of 43 cents per share on revenue of $38.84 billion, according to FactSet. For the full year, analysts expect earnings of $1.51 per share on revenue of $146.09 billion.
LAST YEAR'S QUARTER: In the same three-month period last year, GE reported net income of $3.7 billion, or 35 cents per share, on revenue of $38 billion. Revenue and profit declined because the company had sold its majority stake in NBC Universal and sales in Europe had begun to slow. When results were adjusted to remove the effect of the NBC sale, GE beat analysts' expectations for profit, but not for revenue. For all of 2011, GE earned $14.2 billion, or $1.23 per share, on revenue of $147.3 billion.