GE Profit Falls 6 Percent: Time To Sell More Businesses
HARTFORD, Conn. — General Electric Co. reverted to form with no big surprises in its latest earnings report, and investors shocked by an unexpected profit shortfall three months ago showed their appreciation.
Even though earnings fell in the latest quarter, investors helped GE shares hold their ground Friday.
The conglomerate whose interests range from making loans, TV shows and light bulbs to building industrial machinery reported a 6 percent decline in its second-quarter earnings but still matched analyst's expectations.
GE's share price edged up 2 cents to close at $27.66 even as the Dow Jones industrials lost more than 100 points and briefly slid below 11,000 for the first time in two years.
"Overall, I think people are getting to be less fearful about the perceived risks vs. the actual risks of GE's portfolio or how they run the business," said analyst Nicholas Heymann of Sterne Agee. "At the margin things are better than people expected or worried would not be performing well. I think people are having a bit of relief."
That was a big change from April 11 when the normally reliable GE shocked investors with a 6 percent decline in first-quarter earnings without preparing them for it. Its shares dropped 10 percent that day and led the overall market lower. GE blamed disruptions in its financial business late in the first quarter for its inability to advise Wall Street in advance about the deterioration in its earnings.
Also Friday, GE announced it agreed to sell its Japanese consumer finance unit, which includes the Lake personal loan business, wholly owned credit cards and mortgages under GE Consumer Finance Co Ltd. and its subsidiaries, to Shinsei Bank, a midsize Japanese bank. The sale is expected to close in the next quarter.
Fairfield-based GE earned $5.07 billion, or 51 cents per share, compared with a year-earlier profit of $5.38 billion, or 52 cents per share.
Revenue rose to $46.89 billion from $42.38 billion a year earlier.
On the basis of continuing operations, GE earned $5.39 billion, or 54 cents per share. Analysts expected the company to report earnings of 54 cents per share on revenue of $45.31 billion, according to Thomson Financial.
"No news is good news today," said analyst Matt Collins at Edward Jones in St. Louis. "I think investors were braced for the worst."
The sale of the Japanese consumer finance business was the most recent in a series of moves by GE to reshape its portfolio to focus on faster growth businesses. GE announced Thursday that it wants to spin off its lighting and appliance businesses.
Shifts in GE's portfolio are welcomed by many analysts. Several investor analysts have criticized GE for its difficulties getting all the parts of its vast array of businesses running smoothly at the same time.
"We believe we had a solid performance in a tough environment," GE Chief Executive Jeff Immelt told analysts in a conference call Friday.
Immelt told investor analysts that growth internationally is "offsetting a sluggish U.S. economy" and GE's long-term positioning outside the United States has shown benefits in the second quarter, he said.
Revenue rose 11 percent, but costs from sales, expenses and interest and other financial charges rose 15 percent, slicing into the conglomerate's quarterly profit.
GE reaffirmed its full-year guidance of $2.20 to $2.30 per share, which is flat to an increase of 5 percent. Analysts surveyed by Thomson Financial expect full-year earnings of $2.22.
GE's infrastructure business, which manufactures big-ticket items such as locomotives and water treatment plants and is making major inroads in developing countries, turned in the greatest revenue and profit gains for the quarter. Revenue was $17.5 billion, up 26 percent. Profit rose by 24 percent, to $3.17 billion.
Profit at GE Money fell by 9 percent, to $1.05 billion. GE Money provides retail, banking and credit services to consumers, retailers and auto dealers in 55 countries. The Japanese consumer finance unit being sold is part of GE Money.
Earnings at GE's commercial finance business rose to $1.39 billion, or 7 percent, which Immelt said was ahead of expectations.
And its Healthcare segment posted a profit rise of 8 percent, to $747 million. GE Healthcare's surgery business started up in early May, 20 months after GE shut down a plant in Utah that made X-ray surgical equipment amid concerns over quality control.
In addition, GE officials on Friday highlighted a 7 percent gain in revenue and 1 percent increase in profit for NBC Universal. Chief Financial Officer Keith Sherin cited the success of NBC programs such as "The Office" and "House," with strength particularly in cable TV.
GE also expects about $1 billion in advertising for NBC's coverage of the Olympics in Beijing, which begins next month.
Immelt has made clear that NBC is not for sale, despite calls by some analysts for such a move.
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STEPHEN SINGER | July 11, 2008 04:52 PM EST |
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