(Reuters) - Three months after General Electric Co (GE.N) shares posted their biggest one-day jump in six years, the stock has lost much of those gains and analysts say the company needs to show its industrial operations can generate stronger profits.
GE is to report second-quarter results on Friday, and analysts on average are forecasting earnings before one-time items of 28 cents per share, down from 39 cents a year ago, according to Thomson Reuters I/B/E/S.
Since GE Chief Executive Jeff Immelt announced in April that the conglomerate would largely exit its financial services businesses, investors are zeroing in on the remaining industrial operations.
“I want to see operating metrics improve on the industrial side,” said Jack DeGan, chief investment officer at Harbor Advisory, which holds GE shares. Atop DeGan’s list is progress with margins, orders, revenue growth and administrative cost cuts.
GE shares have receded 6 percent since the company’s announcement it would exit most of GE Capital. The company has faced regulatory pushback to two deals designed to spur its industrial manufacturing focus, while global growth concerns have undercut shares of GE and its multinational rivals.
Wall Street is bracing for tepid financial performance overall this quarter for diversified industrial companies. Investors will seek signs that recent stock market upheaval in China could stall growth there, the world’s second largest economy, further weakening prospects.
“We see little reason for optimism” in the quarter, Goldman Sachs analyst Joe Ritchie said in a report.
Revenue at more than 20 diversified manufacturers is only expected to grow 0.2 percent on average in the quarter, excluding effects of foreign exchange and acquisitions, according to RBC Capital Markets analyst Deane Dray. That would be the worst performance in more than two years.
The picture is particularly bleak for those supplying to the oil sector, which has cut capital expenditures as a result of the drop in oil prices. Revenue is expected to drop 2.2 percent for oil-exposed manufacturers, according to Dray.
GE, which provides equipment to oil and gas customers, is expected to report a 14 percent decline in revenue for its oil segment, according to Morgan Stanley analyst Nigel Coe. But Coe projects a nearly 6 percent revenue increase in GE’s power and water division, helped by gas and wind turbine shipments.
GE wants to expand its power division with its proposed 12.4 billion euro ($13.6 billion) purchase of Alstom’s (ALSO.PA) energy business. The deal has met resistance from European antitrust regulators, and investors will be eager to understand any potential concessions from GE.
Reporting by Lewis Krauskopf in New York; Editing by Leslie Adler