How Tomorrow's GE Earnings Can Power Ahead

General Electric (GE 0.68%) is scheduled to release its quarterly earnings report tomorrow, and this time around, at least, expectations are fairly modest. That signals investors' beliefs that the company is going through hard times, but it also sets the stage for a big GE earnings beat that could push the stock upward out of its recent flat performance.

GE is the oldest member of the current Dow Jones Industrials (^DJI 0.40%), but it has reinvented itself in recent years to focus on its industrial roots. With its past financial focus having given way to innovation in energy and other industrial applications, the company is poised to capitalize on long-term trends that should boost its business. 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 quarterly report.

Stats on General Electric

Source: Yahoo! Finance.

When will GE earnings push higher?
In recent months, analysts have throttled back their expectations for General Electric's earnings, with a 10% cut in estimates for the June quarter and a penny-per-share pullback for their full-year 2013 consensus. The stock has managed to post modest gains, rising about 4% since mid-April.

GE's stock didn't start the quarter well, even though its earnings report back in April didn't look all that bad on the surface. Operating earnings grew 15%, with particularly strong gains in oil and gas equipment and its aviation segment. Yet investors focused on GE's flat revenue and struggling European business, which suffered 17% declines in sales and weighed on profit margins as well.

Still, those results haven't changed GE's general strategic plan as it strengthens its reach into various industrial sectors. Its vision of what it calls the "industrial Internet" put it on a collision course with IBM (IBM -1.05%), whose Big Data initiative has similar goals of providing interconnections across networks of equipment to provide information that companies can use to cut costs and monitor operations. IBM has used its technology expertise to attract interest from clients and bolster its high-margin earnings growth, but GE has a closer connection to the actual equipment that will provide data to users. General Electric has also continued to become a bigger player in energy, combining its renewable-energy expertise with its recent purchase of Lufkin Industries to add traditional oil and gas services to its portfolio of offerings to customers.

In order to emphasize its successful industrial business, GE has tried to shrink its once-dominant GE Capital unit. Yet the division is so large that it's hard to find viable buyers, and its $50 billion portfolio of credit card loans raises concerns that a buyer would have such a large stranglehold over the industry that it would create systemic risk. GE did manage to sell off some of its net-lease properties to American Realty Capital (VER) late in the quarter, as American Realty has been going through a string of acquisitions with the aim of growing its overall business. But with the deal coming out to less than $800 million, GE will have to work harder to divest itself of GE Capital assets if it truly wants to de-emphasize that part of its business.

In tomorrow's GE earnings report, pay special attention to each individual business segment, with particular attention to the health care division. With Obamacare right around the corner, the need for electronic medical records will likely increase, but sophisticated medical equipment might be a tougher sell. As GE seeks to grow on all fronts, though, it'll be interesting to see where it focuses the most attention in the coming months.

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