GE Earnings Will Show Solid Growth If Europe Doesn’t Get In The Way

GE: General Electric logo
General Electric

General Electric Co. (NYSE:GE) is scheduled to announce its second quarter earnings on Friday, July 20. The company is looking for strong organic revenue growth in its industrial businesses in the previous quarter, on a year-over-year basis. We anticipate the good performance in its industrial businesses to continue in to the second quarter driven by revenue growth in Pacific Basin and in the aviation business of the company. However, the European sovereign debt crises can impact revenue growth in the industrial businesses of the company and can also increase default risk associated with finance receivables due from Europe region. We currently have a $20 price estimate for GE, in-line with its current market price.

See our complete analysis for GE here

[trefis_slideshow ticker=”GE” rhs=”3″]

European sovereign debt crises weighing on growth

Relevant Articles
  1. Is General Electric Stock A Better Pick Over Its Sector Peer?
  2. Will General Electric Stock Rise Post Q4?
  3. Up 10% In A Month, Will General Electric Stock See More Gains?
  4. What’s Driving Growth For General Electric Stock?
  5. How Will General Electric Stock Trend Following Q3 Earnings?
  6. Pick Either General Electric Stock Or Its Sector Peer – Both May Offer Similar Returns

The economic slowdown in Europe as a result of its sovereign debt crisis has impacted sales of GE in the region. Revenues from Europe fell by 6% in 2011 as compared to 2010. We anticipate the trend to continue in to second quarter of 2012 as a result of continuing uncertain economic environment in Europe. The region accounts for nearly 20% of the overall sales of the company.

Also, several European countries particularly Spain, Portugal, Ireland, Italy, Greece and Hungary, have been subject to credit downgrade due to weaknesses in their fiscal situations. This has further impacted economic growth in the region. As a result, several companies including GE run an increased default risk associated with finance receivables due from consumer and commercial customers in Europe. We anticipate the increased risk to impact revenues in the financial businesses of GE during the second quarter. However, of the $91 billion in finance receivables due from Europe region, approximately 87% is secured with collateral. This will ensure losses to remain under a check for the company.

Thus, the European sovereign debt crises shall weigh on revenues in both the industrial and financial businesses of the company.

Pacific Basin driving growth

However, we anticipate Pacific Basin along with Latin America to continue to drive growth for the company in the second quarter. In 2011, revenues from Pacific Basin grew by 11.5% on a y-o-y basis as compared to overall revenue decline for the company during the same period. Pacific Basin accounted for nearly 16% of the overall revenues for GE in 2011.

Recovering aviation industry to boost revenues

GE also experienced 12% revenue growth in its aviation division driven by higher aircraft engine shipments, in the first quarter of 2012, on a year-over-year basis. We anticipate the recovering aviation industry to continue to drive revenue growth in the division in the second quarter as well.

On the whole, we anticipate GE to post good numbers in its 2012 second quarter earnings driven by revenue growth in Pacific Basin and in Aviation business of the company, offset by slowdown in Europe.

Understand How a Company’s Products Impact its Stock Price at Trefis