GE reports unexpected profit drop, shares tumble

Analysis

General Electric Co reported an unexpected 6% drop in profit, as the slumping US economy and credit crunch drove down profits at its financial, industrial and healthcare units.

Shares of the second-largest US company by market capitalization fell 5.4% on the news, dragging down the broader US markets. Due to the size and variety of its operations, GE is regarded as a bellwether of the US economy.

“It's confirmation that we're in a recession,” said Jerome Heppelmann, portfolio manager at Liberty Ridge Capital in Berwyn, Pennsylvania.

The company also lowered its earnings forecast for the year, reflecting a slower economy and challenging capital markets.

“These results confirm that the slowdown is widespread and beginning to impact capex (capital expenditures) and longer-cycle businesses,” said Stephen Surpless, senior analyst at Cantor Fitzgerald in London.

“While the credit crisis might be nearer to the end than the beginning, according to some, the impact on the real economy is taking place and is unlikely to abate in 2008,” he added.

GE, which also has media and finance arms, reported profit of $4.3 billion, or 43 cents per diluted share, compared with $4.57 billion, or 44 cents per diluted share, a year earlier. Revenue rose 7.8%.

Profit from continuing operations of 44 cents per share compared with analysts' average forecast of 51 cents, according to Reuters Estimates.

The sharpest drop in segment profit came at the conglomerate's financial divisions, with commercial finance down 20% and GE Money consumer finance down 19%.

Profit at GE's industrial unit, which makes things like lighting and appliances, fell 16% and health care was down 16%.

Those declines overshadowed a 17% rise in profit at the infrastructure unit, which has been boosted by emerging-market demand for heavy equipment like electricity-producing turbines. NBC Universal's profit rose 3%.

The company cut its full-year profit forecast from continuing earnings to a range of $2.20 to $2.30 per share.

The new full-year earnings forecast, which calls for profit to be flat to up 5%, compares with an earlier view of “at least” 10%. Many on Wall Street had viewed that as a conservative forecast.

“The extraordinary disruption in the capital markets in March affected our ability to complete asset sales and resulted in higher mark-to-market losses and impairments,” said Jeff Immelt, chairman and chief executive, in a statement.

GE shares were trading at $34.75 in premarket trading, down from a $36.75 close on the New York Stock Exchange.

Prior to Friday's premarket trading, GE shares were down less than 1%, less of a drop than the 5% slide in the Dow Jones industrial average, of which GE is a component. (Reuters)

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