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Expect Clarity on GE’s Massive Back-to-Roots Restructuring

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July 16, 2015
ge earnings restructuring

Investors will be looking for a progress report on General Electric’s massive efforts to shrink itself back to its manufacturing roots when the Dow Jones Industrials’ big gun reports second-quarter earnings before the bell Friday.

It’s been drastically scaling back many financing operations—GE Capital, GE Capital Real Estate, among others—as part of a plan announced in April to shed its “systemically important financial institution” designation. The SIFI label was tacked onto non-bank financial firms that grew out of the 2010 Dodd-Frank law and carries tougher oversight by the Federal Reserve.

That’s not news to Wall Street, which is factoring in a meager 2% move on the earnings release. The implied volatility is only at the 30th percentile, a low end of the range though there is some interest in the Aug. 27 calls.

The second quarter witnessed asset sales totaling $23 billion for a year-to-date score of $68 billion. All this GE Capital rationalization has been costly to the company. It took a $14.1 billion charge in the first quarter and is looking at another $4.3 billion charge in the second quarter.

For investors, contracting the company looks like good news financially. The firm is likely to return more than $90 billion (yes, billion) to shareholders through dividends and share buybacks through 2018.

Analysts also will be looking for updates to the Synchrony Financial divestment and spin-off. (Synchrony also reports earnings on Friday and the consensus is for a profit of 62 cents a share on revenues of $2.77 billion.) As well, expect some talk about getting regulatory clearance from the European Commission on its $13.8 billion deal to purchase French turbine maker Alstom’s power and grid division.

Like all multinationals, GE will get hit by foreign currency conversions, reflecting the impact of the stronger dollar. Expect a hit in the energy patch mirroring the deep drop in oil to drag down earnings too. The big questions are this: Is the division losing money? Will it in the future?

In the end, analysts reporting to ThomsonReuters are looking for earnings per share of 28 cents on revenue of $28.7 billion—not surprisingly below the year-ago results.