GE's Performance Under Scrutiny

It's back to the future for General Electric Co. this quarter.

The industrial giant, which reports earnings Friday, is contending with a raft of Wall Street downgrades, a slipping stock price, and growing questions of whether the conglomerate will meet its own profit goal for the year.

GE Chief Executive Jeff Immelt, who has delivered disappointing results to Wall Street before, this time has a new investor to please: Nelson Peltz, whose Trian Fund Management LP disclosed a $2.5 billion stake in the company about a year ago.

The investment was as friendly as activist approaches get, with Trian endorsing the leadership of Mr. Immelt and applauding his move to pull GE away from the financial businesses that once generated half its profits. But Trian's investment was predicated on the thesis that GE could boost profits beyond Mr. Immelt's own public targets, improve margins and add some $20 billion in new debt to its balance sheet to buy back GE shares.

So far this year, GE's performance has disappointed. It reported weak revenue in the first half of this year and Mr. Immelt has promised investors that sales of its gas turbines will pick up in the second half of the year, allowing the company to hit its targets. The company has yet to take on new debt, though share repurchases are on pace to exceed its goal for the year.

Now, the outlook for U.S. industrial companies is dimming. Honeywell International Inc., which like GE produces aerospace equipment and jet engines; and Dover Corp., which makes equipment for the energy, fluid-control and food-service industries, both issued profit warnings for the third quarter. Overall, analysts expect GE to report earnings of 30 cents a share for the quarter, on revenue of $29.64 billion, according to FactSet.

"GE is now a clear low-expectations stock," Morgan Stanley analyst Nigel Coe wrote in a recent report when he lowered his third-quarter profit forecast and target price for the stock.

That is a comedown from last year when Mr. Immelt won plaudits from analysts and investors for selling most of GE's finance operation, which had dragged on its performance after the financial crisis. The stock rose 24% in 2015, trading above $30 for the first time since 2008.

A year after news of Trian's investment put a charge into GE's shares, sending them up more than 5% in one day, that progress has stalled out. Shares have slumped below $30, and are down 5.6% for the year.

Investors who were buoyed by Trian's appearance on the scene and GE's decision to exit finance have been frustrated by the company's failure to use its balance sheet to either make a major acquisition or a more substantial buyback, said Barclays analyst Scott Davis.

"They literally haven't done anything to help themselves," Mr. Davis said.

Mr. Immelt and his team are trying to show investors the company's renewed focus on industrial business lines will increase profits. The company aims to boost GE's per-share earnings to $2 a share in 2018, an increase from the $1.61 the company reported in 2015. Trian, meanwhile, believes GE could get the measure to $2.20 in that time.

Cowen warned in August that it was "unrealistic" for GE would pull off a late-year surge in profits because of the cost of ramping up production on GE's newest commercial jet engines and sagging markets for oil and gas equipment.

"Activist or not, at the end of the day you've got to deliver the numbers," said Gautam Khanna, an analyst at Cowen & Co.

Analysts from J.P. Morgan Chase & Co. advised clients to sell GE shares in May, questioning whether the structural changes were enough to offset doubts the company would meet Mr. Immelt's earnings goal in 2018.

Meanwhile, the company has bought back $13.7 billion in shares through the first half of the year, ahead of the pace for its $18 billion target for the year. And it has made a some small acquisitions.

In July, Mr. Immelt said the company would be "disciplined" in deciding whether to buy back shares -- Trian's preferred strategy -- or pursue more acquisitions.

As for borrowing, as Trian has also urged, Mr. Immelt hedged. Any leverage GE adds to the balance sheet "is going to be paced by the opportunities to put that capital to work, if we in fact do it, and the returns that we can generate for shareholders," Mr. Immelt said.

Write to Ted Mann at ted.mann@wsj.com