Investors to gauge pace of GE’s recovery with second quarter earnings

Earnings Preview: General Electric

FAIRFIELD, Conn. — General Electric Co., one of the world’s largest industrial companies, reports its second-quarter earnings before the market opens on Friday.

WHAT TO WATCH FOR: Whether GE’s strategy for shrinking its GE Capital lending unit while relying on its big industrial units to pull itself out of the recession is working.

GE Capital has been the source of much of GE’s big financial headache in the past two years, as loans for everything from store credit cards to office buildings went bad as consumers and businesses struggled.

GE has worked to stabilize GE Capital, and has largely improved the division with the exception of commercial real estate. Company CEO Jeffrey Immelt said in April that GE Capital had “turned the corner.” Investors will look to second-quarter results to see if the better performance can be sustained in the face of the slowing economic recovery.

That sluggishness could also impact GE’s big businesses making jet engines, building equipment for oil field exploration and constructing giant windmills and gas turbines to generate energy.

In the first quarter, GE’s industrial businesses posted sales that were 2 percent lower than a year earlier, suggesting that a recovery could take some time.

In a research report last week, Goldman Sachs estimated that industrial revenue would decline up to 4 percent in the second quarter, weighed by lower results in GE’s business making power plant equipment and other energy infrastructure. But the investment bank also said that GE Capital appears to be improving faster than expected.

WHY IT MATTERS: GE is one of the most closely watched companies because it reaches into most areas of the global economy. GE Capital is a barometer of the health of the financial system, everything from lending for credit cards to office space. If consumers are spending money on new kitchens, the chances are good they are buying GE refrigerators. If airlines want to expand, they buy planes outfitted with GE jet engines. If hospitals have the money to modernize, they often buy new GE sonograms and MRI machines.

WHAT’S EXPECTED: Analysts polled by Thomson Reuters expect GE to earn 27 cents per share in the second quarter on revenue of $38.5 billion.

LAST YEAR’S QUARTER: In the second quarter of 2009, GE earned $2.6 billion, or 24 cents per share on revenue of $39.1 billion.