General Electric Co. (GE) is scheduled to report its
third-quarter earnings before the market opens Friday. Here's what
you need to know:
EARNINGS FORECAST: GE's third-quarter earnings are expected at
$0.37 a share, according to a survey of analysts by Thomson
Reuters, up from $0.36 a share a year earlier. GE doesn't provide
earnings guidance.
REVENUE FORECAST. Analysts forecast revenue of $36.8 billion, up
from $35.7 billion in the same period last year.
WHAT TO WATCH:
--OIL: GE has spent more than $14 billion building up its oil
and gas business in recent years, and it has surged as a percentage
of the company's nonfinancial business in the past decade, rising
from 4% of industrial revenues in 2004 to 18% this year, according
to Bernstein Research. That could present a problem as global oil
prices plunge. Falling oil prices are pressuring capital
expenditures, especially for offshore oil exploration and
extraction, where customers for GE's drilling and processing
equipment are. But the oil and gas unit has a strong service side,
representing 50% of revenues, and that could soften the blow of the
current slump in oil prices, Bernstein said. The analysts expect
GE's revenues in the sector to rise--from $14 billion in 2013 to
$19.5 billion at the end of the current year.
--THE WORLD ECONOMY: GE has trumpeted its efforts to increase
its exposure to global markets for years. Chief Executive Jeff
Immelt says GE will eventually bring in 70% of its revenues from
countries outside the U.S. The upside, Mr. Immelt says, is that GE
has staked out a leading position in growth markets like
electricity generation in Africa and Asia. Friday's earnings report
could provide a new outlook on how uncertainty in global markets
could impact GE's profits.
--M&A: GE has been selling off business units it calls
noncore at an accelerating clip in the past 18 months, in an effort
to pivot toward stronger industrial earnings as well as to reassure
investors that it has dumped the riskier assets that imperiled the
company during the financial crisis. So far in 2014, Mr. Immelt has
begun the process of splitting off Synchrony Financial, GE
Capital's consumer finance business, and struck a deal to sell its
appliances unit for $3.3 billion to rival Electrolux. But some want
GE to keep going. Analysts at Barclays Capital said last month that
GE should consider selling off its healthcare business and cutting
back even more aggressively at GE Capital to focus solely on
industrial financing. Mr. Immelt responded by declaring healthcare
a core GE industrial business, but some analysts who follow the
company believe the appointment of former M&A chief John
Flannery as the new head of healthcare could signal that portions
of the business will be restructured or sold off.
--INDUSTRIAL MARGINS: GE missed its margin target last year, a
factor that has helped depress the company's shares for all of
2014. This year, Mr. Immelt faces far more serious turmoil in
global markets and is likely to try to reassure investors that the
industrial underpinnings of his strategy remain strong.
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