General Electric's Earnings: 2 Important Takeaways

Last week was one of the busiest weeks of the year for the Dow Jones Industrial Average (INDEX: ^DJI  ) , as 12 of its 30 component companies reported earnings. If the blue-chip index's performance over the last two weeks is any indication, I think it's fair to say that investors aren't overly enthused about the performances. Since economic bellwether Alcoa (NYSE: AA  ) got the ball rolling at the beginning of October, the Dow is down nearly 2%. Today, it's down 79 points, or 0.59%, as of 2:30 p.m. EDT.

What follows is a brief look at the earnings of General Electric (NYSE: GE  ) , the Dow's oldest component stock, which reported its results at the end of last week.

Digging into GE's earnings
As you can see below, while GE's sales and earnings both grew on a year-over-year basis, both figures missed expectations. Revenue for the quarter came in at $36.3 billion, versus analysts' collective estimate of $36.94 billion. And earnings per share were $0.33, missing expectations by $0.03 a share.

Metric

Actual

Estimated

Last Year

Revenue (billion)

$36.3

$36.94

$35.37

Earnings per share

$0.33

$0.36

$0.22

Source: The Wall Street Journal; Morningstar.com.

In no particular order, here are two notable takeaways from GE's earnings release:

1. Downbeat forecast
GE acknowledged that it's targeting revenue growth of 3% this year. According to The Wall Street Journal, this is down from the 5% growth rate forecast a mere four weeks ago. As a result, the corporate conglomerate now joins a chorus of blue-chip companies that have downgraded their estimates for the remainder of the year.

The aluminum company and economic bellwether Alcoa started things off two weeks ago by moderating its 2012 demand growth forecast to 6%, down from an earlier estimate of 7%. In the heavy-truck and trailer segment, moreover, the company is anticipating a 9% decline.

A number of additional companies then did the same last week. Chip maker Intel (Nasdaq: INTC  ) noted on its earnings call that sales of personal computers are slowing significantly and that its customers are taking a "cautious inventory approach in the face of market uncertainty and the timing of the Windows 8 launch." Shares in Intel are down 27% from the 52-week high at the beginning of May.

2. Currency headwinds
GE also joins a number of companies that are struggling against headwinds in the currency market -- the biggest of which is the strengthening of the U.S. dollar against the euro, which makes domestic exports more expensive on a comparative basis.

As I discussed in an analysis of Coca-Cola's (NYSE: KO  ) earnings:

Much of the uncertainty can be traced to the actions of central banks. Since the beginning of last month, virtually every country's monetary policymakers have opted to flood their respective economies with liquidity. The European Central Bank kicked things off at the beginning of September announcing an "unlimited" bond-buying program focused on the debt of troubled European countries. In its wake, central bankers in the United States, China, Japan, Australia, and Brazil all followed suit. The seemingly related moves have even led some to question whether we're in the midst of a currency war.

For the quarter, GE said that revenue would have been higher by $1.1 billion but for the effect of currencies.

The Foolish bottom line
It's relatively clear that the global economy is making companies work for their money. That being said, there are still a number of massive opportunities for geographically diversified operations like GE to soar in the years ahead. To read about these, download our in-depth report on GE by clicking here now. The report comes with a year of free updates, so claim your investing edge today.

John Maxfield has no positions in the stocks mentioned above. The Motley Fool owns shares of General Electric Company and Intel. Motley Fool newsletter services recommend Intel and The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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