GE Earnings: What to Watch

By Thomas Gryta Features Dow Jones Newswires

General Electric Co. is set to report second-quarter earnings before the market opens on Friday. Here is what you need to know:

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EARNINGS FORECAST: Analysts polled by Thomson Reuters expect earnings per share of 25 cents, compared with adjusted earnings per share of 51 cents during the same period last year.

REVENUE FORECAST: Analysts project revenue of $29.02 billion, down from $33.49 billion a year earlier.

WHAT TO WATCH:

END OF AN ERA: Friday's conference call is to be Jeffrey Immelt's last one after running the industrial giant for 16 years. Critics point out the poor stock performance during that time, while his fans say he was dealt a tough hand and has navigated crises and exited multiple unattractive businesses, including media, insurance, financial services and virtually all consumer products. Mr. Immelt will remain chairman until the end of the year but hands over the CEO keys to John Flannery on Aug. 1. Both will be on the call.

CASH FLOW: Wall Street was blindsided in April by a negative cash flow of $1.6 billion from industrial operating activities, $1 billion below GE's own target. The company blamed the shortfall on the timing of inventory and orders and has since reiterated its goal of $12 billion to $14 billion of positive industrial cash flow by the end of the year, up from $11.6 billion in 2016. GE typically does more business in the second half of the year, but investors are looking for reassurance that the guidance is plausible.

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OUTLOOK: Investors are waiting for GE to walk back from its long-held 2018 earnings goal of $2 a share. Analyst estimates have dropped to $1.81, according to Thomson Reuters, and GE has said $2 is now at the high end and will require more cost-cutting. Will GE rip the Band-Aid off now or wait until later when Mr. Flannery is running the show?

COST CUTS: GE plans to trim $1 billion in its industrial business for each of the next two years. After working with activist Trian Fund Management, GE increased its planned cuts and tied executive bonuses more closely to core business performance. Mr. Flannery is expected by many on Wall Street to continue the cutting and possibly restructure the sprawling conglomerate.

BAKER HUGHES: GE earlier this month closed a deal to put its long-struggling oil and gas business together with Baker Hughes Inc. to create a new GE-controlled public company providing equipment and services to major oil producers. The segment has been hard hit by falling prices, and the new company will allow for further cost cuts -- $1.2 billion by 2020 -- as it positions itself for a potential recovery. On Friday, investors will be listening for insights on any turnaround in the business seen in the second quarter.

Write to Thomas Gryta at thomas.gryta@wsj.com

(END) Dow Jones Newswires

July 20, 2017 07:14 ET (11:14 GMT)