GE 4Q Profit Falls 19 Percent As Company Ends One Of Its Worst Years
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General Electric Co.'s fourth-quarter net income fell 19 percent, but the industrial bellwether is seeing signs of stability as it moves into a key rebuilding year.
GE, one of the world's largest companies, said that orders improved late in the year in its businesses that supply equipment like turbines for power plants and sonogram machines for hospitals. Its profit decline was smaller than previous quarters even though the company's big lending unit still weighed on earnings.
Results beat Wall Street forecasts for the conglomerate, which is coming off one of the worst years in its 117-year history.
"The world we look at has improved," GE CEO Jeff Immelt told analysts in a conference call following the earnings results on Friday. That optimism sent shares up 29 cents, or 1.8 percent, to $16.31 in afternoon trading.
But some familiar problems that hampered GE in 2009 persisted. Profits for engines used in commercial and military jets fell, along with demand for GE's train locomotives, a likely sign that businesses remain hesitant to buy expensive equipment after a painful recession. Overall revenue fell 10 percent in the quarter to $41 billion and orders totaled $22 billion.
The big GE Capital finance unit – the source of most of GE's problems in 2009 – squeezed out a modest profit in the fourth quarter. But it was still dogged by problems in its holdings and lending in commercial real estate. GE Capital's $336 million in overall earnings dropped 67 percent from a year earlier.
Profits fell 30 percent at NBC Universal, which has struggled with much lower advertising income and flops in its movie business. GE is selling its majority stake in the ailing entertainment unit to cable operator Comcast in a deal expected to close toward the end of this year.
For the quarter, GE posted net income of $2.94 billion, or 28 cents per share. That compared with $3.65 billion, or 35 cents, a year earlier. Analysts expected 26 cents per share in earnings.
Fairfield, Conn.-based GE is considered a barometer of the nation's economic health since it is involved in sectors ranging from energy to finance. Homeowners buy GE kitchen appliances, power plants use GE gas turbines and hospitals buy GE MRI machines. Consumers use credit cards backed by GE money and businesses turn to the company for loans to buy expensive equipment.
The conglomerate hopes to "play offense" and return to growth in 2010. It is looking for stronger results in its industrial divisions, but indicated most of that work would come from fixing equipment already owned by customers, not new orders.
GE, which makes products like wind turbines and electronic medical records, is also trying to tap billions in energy and health care stimulus money offered by governments around the globe. Its energy unit was the among the best performers in the fourth quarter with a $2.2 billion profit. GE's overall backlog of new business inched up modestly to $175 billion.
But GE's results for 2009 – a 37 percent drop in annual earnings to $11 billion – indicate just how deeply the recession affected the company.
It lost its top credit rating, cut its dividend by 68 percent, and saw its stock retreat to depths not hit since the early 1990s. GE's quarterly profits were down substantially as the recession gouged its industrial businesses and the financial crisis battered its GE Capital lending arm.
In an effort to achieve stability, GE is trying to rely much less on GE Capital's profits, which once made up half of the conglomerate's earnings. GE says that some segments, like consumer credit cards, are in better shape after GE Capital took steps like scaling back on lending and tightening credit. It has also raised cash in an effort to make GE Capital "safe and secure." Immelt said Friday that the worst is behind the finance unit.
Yet it will remain a sore point for GE in 2010. The company expects that losses from soured loans won't peak until this year, though it hasn't been specific on when. The unit remains exposed to commercial real estate, a market in decline. That unit posted a $593 million quarterly loss and lost a whopping $1.5 billion on the year.
GE is also warily watching a recent proposal by President Obama to impose new taxes on big financial institutions. GE estimates the change could cost GE Capital $500 million annually, though it would not significantly affect the company's overall earnings.
GE expects to amass $25 billion in cash by the end of this year, much of it from its deal to sell its majority stake in NBC Universal to cable operator Comcast. Immelt said that GE could use the money to expand its infrastructure businesses or to eventually increase its dividend if earnings go up by 2011.
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STEPHEN MANNING 01/22/10 03:26 PM ET Associated Press