GE's 22 percent decline hits forecast

By Stephen Singer ASSOCIATED PRESS | Saturday, October 11, 2008

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HARTFORD, Conn.| General Electric Co. spared investors any nasty surprises as it reported a 22 percent drop in third-quarter earnings on Friday, meeting its own lowered forecast and blaming the decline on its struggling finance arm. The company's loan and lease business has been hammered by the worst financial crisis since the 1929 stock market crash.

GE, which also makes everything from jet engines to water-treatment systems and owns NBC Universal, reported net income of $4.3 billion, or 43 cents per share. Sales rose 11 percent to $47.23 billion.

A year earlier, the company had a net income of $5.56 billion, or 54 cents.

The Fairfield, Conn.-based company has cited softening profits at GE Capital, which provides financing ranging from consumer car loans to energy project lending. Since the spring, troubled credit markets and waning confidence in global financial systems have cut into profits there. GE has lowered its 2008 earnings forecast twice since April, announced a reorganization and raised capital through the sale of $15 billion in stock, including $3 billion in preferred shares to Warren Buffett's Berkshire Hathaway Inc.

Analyst Nicholas Heymann of Sterne Agee & Leach in New York said investors are nervous that GE may lower its full-year forecast again.

"Investors are saying: 'We see two adjustments before we get into rough seas. How many are we going to see when we're in rough seas?'"

Mr. Heymann cut his 2009 earnings estimate to $1.85 from $2 and reduced his six- to 12-month price target to $17 from $20. His 2008 forecast remains at $2.

Shares of GE rose $2.49, or 13.1 percent, to $21.50 Friday as the broader market swung wildly. GE is down by 42 percent since April 10, the day before GE shocked investors by widely missing its target for the first quarter.

The latest results, the third straight quarter of diminishing profits, were dragged down by a 33 percent decline in profit at GE Capital and an 82 percent drop in profit at GE's consumer and industrial unit, which makes appliances and other products. GE plans to spin off or sell that unit.

GE remains on track to meet its 2008 earnings forecast, which it lowered by about 10 percent last month to between $19.5 billion and $21 billion. GE Capital is on track to earn more than $9 billion for the year, it said.

Citigroup analyst Jeffrey Sprague told investors in a note Friday that while GE has "some outstanding assets and a solid AAA balance sheet," its operating performance is uneven and its finance portfolio is risky.

"We believe GE may have reached the point that its size and complexity have become a hindrance to effective management," Mr. Sprague said, although he maintained his "hold" rating on GE, citing good cash flow and a high dividend yield among its strengths.

Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, said GE under Chief Executive Officer Jeff Immelt is doing relatively well in bad times.

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