It’s been a long, hard slog for General Electric (GE) since the financial crisis took a huge bite out of its stock, dividend and reputation. But more evidence of the conglomerate’s turnaround could show itself Friday morning when we get the latest word on GE earnings.
After biting the bullet on a $30 billion writedown in its bloated GE Capital unit, and watching GE stock sink to below $10 per share amid a brutal dividend cut, CEO Jeffrey Immelt has worked to wean General Electric off GE Capital and re-root itself as an industrial giant.
The work is paying off — GE stock is up about 200% off its 2009 low, though at $24-plus, it’s still well off its pre-crisis levels around $40. Meanwhile, its dividend yields 3.1% at the current quarterly 19-cent payout — 90% better than its crisis-cut price of 10 cents, but again, still well off the pre-crisis dividend of 31 cents.
But should we expect more progress out of General Electric stock following the third-quarter GE earnings report?
What Investors Should Look for in GE Earnings
Put simply, we’d all ideally like to hear about growth in a lot of places — power and water, oil and gas, energy management, aviation, transportation, healthcare, and home and business. The only exception? GE Capital, where we should see continued paring.
Realistically, we’ll probably see a continuation of what we saw in the second quarter, in which five of its seven industrial businesses showed year-over-year revenue growth for the quarter, and six showed six-month YOY improvement as well as better operating profits — not perfect, but promising.
Meanwhile, GE is operating with a record $223 billion backlog of equipment and services following $24 billion worth of U.S. orders in Q2, which bodes well for stability.
Also expect more signs of shearing in GE Capital. In the second quarter, assets of $521 billion were down from the year-ago period’s $559 billion. GE continued shrinking the segment even more in third quarter, including the reported $2.7 billion sale of a 30,000-unit rental properties portfolio to Blackstone Group (BX), so that should show up on the Q3 report.
GE Earnings Expectations
Wall Street is looking for third-quarter GE earnings of 35 cents per share, which actually would be a penny less than the company earned a year ago. Those profits are expected to come on slightly smaller revenues of $35.9 billion, which would be $400 million off Q3 2012′s total.
Something investors should keep in mind concerning that EPS number is that GE has been active in the buybacks department. GE spent nearly $17 billion to buy back 177 million shares in Q2 of this year alone, and total common shares outstanding as of July 30 were down to 10.1 billion from 10.4 billion at the end of 2012. So that lower EPS is coming on fewer shares — not exactly encouraging.
Immelt has done a great long-term job of hedging General Electric’s weaknesses and focusing on its industrial roots. However, the plan is long-term — even significant changes in one division are watered down by the rest, making huge earnings surprises extremely unlikely.
Still, management has done well to keep GE earnings expectations realistic ahead of its reports, leading to mostly meets and beats.
So don’t look for any fireworks on Friday. Look for a slight GE earnings beat, and a few more of the small changes Immelt expects to build up over the long-term.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long GE.