While the economy showed signs of improvement in the third quarter,
wasn't one of the major beneficiaries.
GE, which makes everything from aircraft engines to light bulbs, is expected to report its fourth-straight quarterly earnings decline Friday, as the firm's power systems unit and plastics division continued to be a drag on profits.
In July, GE said earnings could come in below analysts' estimates due to a projected 40% decline in profits at both the plastics and power systems businesses. Back then, the firm said it expected to earn between 39 cents and 42 cents a share. Analysts are currently calling for 40 cents a share on revenue of $32.43 billion.
Kerry Stirton, an analyst at Bernstein, thinks certain businesses like
will actually put in a solid performance. Indeed, GE has said that
profit should rise 15% to 20% in the third quarter. Analysts say the television unit continues to enjoy strong ratings and advertising margins, and they note that GE's consumer and commercial-finance segments should help to bolster results.
Stirton said GE has also made progress in cutting costs at its power systems unit, which has been unwinding from the bubble it experienced in previous years. But the business still shipped just 27 gas turbines in the quarter, according to some estimates. That's down from 57 in the same period last year.
Meanwhile, Stirton said trends in the "standard medical-equipment domain" have been on the decline in recent months and that sales and orders of consumer products have been weak.
Don MacDougal, an analyst at J.P. Morgan, said a lot of the weakness this quarter will be concentrated in the plastics unit as a result of higher-than-expected benzene prices. Chief Financial Officer Keith Sherin said the unit was "killed on raw materials" in the second quarter and that it needed to see a break in these costs going forward.
CEO Jeffrey Immelt has said previously that strength in the plastics operations would signal an economic recovery, but so far, this strength has been elusive.
GE's quarter won't yet reflect its $2.3 billion acquisition of Finnish medical-device maker
, or the acquisition of
Vivendi Universal Entertainment
But analysts say they will be expecting more details, particularly on the Vivendi acquisition, on Friday. "We look for GE to provide details on final terms and expected close date of the Vivendi transaction as well as more detailed discussion of the income statement and balance sheet impact," MacDougal said.
He added that he will be looking closely to see if GE is boosting its results with any one-time items or through lower tax rates during the quarter. The firm has come under a lot of scrutiny in recent years for carefully managing its earnings.
Although GE isn't likely to offer any guidance about 2004 Friday, MacDougal said he will try to discern whether the current Wall Street estimates of $1.70 are achievable. He is expecting just $1.62 next year, "reflecting the view that GE's industrial businesses do not offer a lot of leverage to a better economy."
For the fourth quarter, GE is expected to earn 47 cents a share, up from 31 cents in the same period a year ago. The firm should post a profit of $1.57 this year compared to $1.51 in 2002.
The recovery is going to be "very incremental," said Larry Horan, an analyst at Parker Hunter. "I don't think
better economic news recently will make much difference."