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Market Update

Earnings on Tap: General Electric

Sluggish U.S. and European demand for electric power plants and wind turbines will continue to hurt the company's top-line growth.

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 General Electric (GE) is scheduled to announce second-quarter results before the markets open Friday.

Wall Street analysts expect earnings to come in at $0.35 per share compared with $0.29 per share reported in the year-ago quarter, but the firm could see lackluster performance in its power and water unit.

First-quarter results, however, were impressive, when the conglomerate reported a 16% hike in net profits at $3.53 billion or $0.34 per share. On an operating basis, earnings reported were $4.1 billion, or $0.39 per share, up 14% and 15%, respectively, from the first quarter of 2012.

In the previous quarter, revenue from its industrial business declined as a result of lower sales of generators for electric power plants and wind turbines. However, higher profits in the company's aviation and transportation segments as well as its finance division, GE Capital, more than offset the shortfall in industrial revenue.

Recently, the Financial Stability Oversight Council voted to designate GE Capital as a systemically important financial institution, which would require stricter oversight for the business.

Morningstar analyst Daniel Holland thinks the move raises some concern as to how much capital the parent company will be able to extract from GE Capital during the coming quarters as new oversight may delay any major capital dividends. Holland believes GE's industrial businesses will drive future growth for the firm.

GE shares are up more than 12% on a year-to-date basis but are still lower than Morningstar's fair value estimate.

Gazala Parveen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.