Investors look for stability in GE’s fourth quarter earnings

Earnings preview: General Electric fourth quarter

FAIRFIELD, Conn. — General Electric Co. is scheduled to report its fourth-quarter and 2009 financial results on Friday before the market opens. Below is a summary of key developments and analyst opinion related to the period.

OVERVIEW: After one of the worst periods in its 117-year history, investors will get a look at how successful GE has been in shoring up its big industrial and financial divisions.

Last year was tumultuous for GE. It lost its top credit rating, cut its dividend by 68 percent, and saw its stock retreat to lows not hit since the early 1990s. GE’s quarterly profits fell substantially as the recession gouged its industrial businesses and the financial crisis battered its lending arm.

Because GE operates in so many areas — from building aircraft engines and hospital sonograms to lending money — investors will search its earnings for clues about the health of the broader economy, not just the company’s performance.

There are hopeful signs. GE Capital, which makes loans on everything from credit cards to overseas mortgages, could benefit from loosening credit markets, higher home prices in some markets and the slowing pace of job losses.

But challenges remain. The finance unit has broad exposure to the commercial real estate market through its loans and properties like office buildings, where vacancies are rising. Losses from borrowers who default on their loans are still high, though the company expects they will peak this year. GE is paring back the size of GE Capital, which once made up about half of its overall profit, to around 30 percent of earnings. The unit has managed to be profitable in recent quarters largely because big tax gains. Many analysts expect sizable tax benefits tied to high losses in the fourth quarter as well.

Investors will also see if businesses are willing to spend more on equipment made by GE’s industrial divisions. They’ll examine GE’s backlog of orders for things like power plant turbines and locomotives as a gauge of the recovery.

Also on investors’ radars will be any details about GE’s plans for the $26 billion in cash it expects to amass by the end of this year. Much of that money comes from the planned sale of its majority stake in NBC Universal to Comcast. That deal was announced in early December, with GE expected to eventually sell all its NBC holdings to the cable operator.

BY THE NUMBERS: On average, analysts polled by Thomson Reuters expect GE to post a profit of 26 cents per share on revenue of $40.02 billion. In the fourth quarter of 2008, the company reported profit of 35 cents per share on revenue of $46.2 billion.

ANALYST TAKE: Analysts expect GE’s industrial businesses to improve somewhat over last year. GE Capital will remain a drag on the company’s earnings.

Nigel Coe of Deutsche Bank wrote that orders for GE equipment in areas like energy generation may improve slightly from the third quarter, though he expects major equipment orders to still be down significantly from 2008.

Coe wrote in an investor note that GE Capital “is a moving target,” noting that positive signs such as improving home prices in the United Kingdom, a large market for GE Capital’s mortgage business. But he also said commercial real estate continues to struggle.

STOCK PERFORMANCE: GE’s shares traded slightly lower during the quarter after gaining sharply during the summer. Company shares fell about 8 percent during the three months, opening at $16.42 on Oct. 1 and closing at $15.13 on Dec. 31.