General Electric Company Earnings: When Will Its Big Merger Stoke Faster Growth?

General Electric successfully convinced interested parties to allow the Alstom merger to go forward, but when will shareholders see the benefits?

Jul 16, 2014 at 9:45AM

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Source: UpstateNYer.

On Friday, General Electric (NYSE:GE) will release its quarterly report, and investors have generally been pleased with the steady upward progress the stock has made in recent months. Like fellow Dow component United Technologies (NYSE:UTX), General Electric has benefited from strength in the aerospace arena, as demand from Boeing (NYSE:BA) and other airlines for its jet-engine business has been high. But its latest success in its asset purchase from French energy company Alstom opens new doors to General Electric's European business, as long as GE can successfully integrate the acquisition quickly and efficiently.

General Electric has been one of the most successful U.S. conglomerates ever, with a presence in disparate businesses ranging from energy to medical devices and from aerospace to consumer goods. Yet recently, General Electric's exposure to aircraft engines and parts and to the booming energy sector have driven its overall gains, as GE moves well past its past reliance on its GE Capital finance division. Can acquisitions like Alstom help General Electric grow faster? Let's take an early look at what's been happening with General Electric over the past quarter and what we're likely to see in its report.

Stats on General Electric

Analyst EPS Estimate

$0.39

Change From Year-Ago EPS

8.3%

Revenue Estimate

$36.31 billion

Change From Year-Ago Revenue

3.4%

Earnings Beats in Past Four Quarters

3

Source: Yahoo! Finance.

Can General Electric earnings grow faster?
In recent months, investors have had slightly mixed views on General Electric earnings, cutting second-quarter estimates by a penny per share but adding that penny to full-year 2015 projections. The stock has eased upward almost 4% since early April.

Ge

Source: General Electric.

General Electric's first-quarter earnings report showed just how effectively the conglomerate has operated lately. Earnings fell due to one-time gains from the previous year, but on an adjusted basis, General Electric saw a 9% rise in earnings per share on an 8% jump in organic revenue. Particularly strong were General Electric's oil and gas, aviation, and power and water segments, each of which managed to grow by double-digit percentages and offset weakness in transportation. With Boeing having seen huge order backlogs, suppliers like General Electric and United Technologies have shared in the industry's healthy sales lately.

But the biggest news for the quarter came from General Electric's $17 billion bid to buy Alstom's energy business. The move gives General Electric a stake in Alstom assets including its transmission and distribution grid business, as well as fossil-fuel and renewable power generation. The move is expected to pay off almost immediately for General Electric in the form of larger profits, and even though the French government ended up insisting on a slightly different deal structure than originally proposed, General Electric has a lot of potential to use the deal as a stepping stone toward a greater presence in Europe.

Still, General Electric still faces some challenges in resolving issues related to its legacy businesses. Last week, for instance, General Electric's GE Capital unit received criticism for its handling of corporate lending practices, and investors still aren't entirely clear about the extent to which GE Capital is making loans unrelated to General Electric's other business divisions. General Electric has nevertheless done a good job of deemphasizing GE Capital's importance in the company after the financial crisis, and the coming spin-off of Synchrony Financial should represent an even bigger step in that direction.

In the General Electric earnings report, watch to see how the company comments on the Alstom acquisition and how it will affect its overall corporate strategy going forward. With so many opportunities outside the U.S., General Electric has huge opportunities to focus in on whatever portion of the global economy it believes has the highest potential for profits in the months and years ahead.

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Dan Caplinger owns shares of General Electric Company. The Motley Fool owns shares of General Electric 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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