What To Watch In The General Electric Earnings Report
General Electric (GE) is due to report earnings before the market opens Friday October 19th. GE is a blue chip conglomerate known for making everything from airplane engines and locomotives to light bulbs, and home appliances. The company operates across virtually all market segments, providing energy services, healthcare services, transportation products and services, household appliances, through GE Capital provides commercial and personal lending, and much more. It seems everywhere you turn GE is providing infrastructure, technology, service, or financing to support businesses all over the world. Whether investors own shares of GE or not, due to the global exposure of GE to all aspects of the economy, they will likely be watching the earnings report closely to get a sense of the overall direction of the markets and global economy.
Top and Bottom Line Numbers
The headline numbers coming from the GE earnings report will obviously be important. Analyst estimates currently see earnings per share for GE coming in at $0.36 for Q3 2012 on $36.9 billion in revenue. If GE is able to match these estimates, earnings per share would have risen roughly 16% year on year while revenue increased 4.2%. GE has a history of surprising to the high side with earnings, having exceeded analyst estimates in three of the past five quarters. Another earnings beat on Friday could be a catalyst that would drive the stock and the markets higher.
Beyond simply the top and bottom line numbers, investors should look to see how margins for GE have improved (or deteriorated) over the past quarter. In the Q2 earnings call GE CEO Jeffrey Immelt said “…Margins are improving and we are on track for margin growth starting in the third quarter for 2012 and 2013.”
GE has focused its business over the last few years, putting more emphasis on higher margin industrials and higher growth market segments like energy infrastructure. GE expects to see double digit growth within its industrial business, and as growth within industrials continues GE should see margins improve. With this renewed focus, it is now time for investors to see the prediction of higher margins come to light. GE expects to see margins improve 30-50 basis points during 2012, and roughly 100 basis points between 2012 and 2013. If GE sees margin improvement that goes beyond what analysts have expected, shares could get a boost as the company’s will have shown that the focus management has placed on industrials is paying off; however, if margins remain flat or deteriorate shares could pull back and create an opportunity for investors to add or initiate positions in GE.