GE slashes outlook for year
HARTFORD, Conn. -- Normally reliable General Electric Co. shocked investors with a nearly 6 percent decline in its first-quarter profit and slashed its earnings forecast for the full year. That sent its own shares down 10 percent and the broader market sharply lower on renewed worries about the weakening economy.
GE blamed disruptions in its financial business late in the quarter for its inability to advise Wall Street ahead of time about the deterioration in its earnings. But analysts unaccustomed to being surprised by the industrial, financial and media conglomerate were rattled by the magnitude and breadth of the decline.
"This implies that the back half of March deteriorated significantly, which is especially unnerving," Goldman Sachs analyst Deane M. Dray wrote in an investor note. "Bottom-line: Disappointments were spread across the GE portfolio, with both industrial and financial businesses well below expectations."
GE's financial services business fell 28 percent, driven by a 21 percent erosion in commercial finance due to lower real estate and other income. Net income fell 6 percent to $4.3 billion, or 43 cents per share, from $4.57 billion, or 44 cents per share, a year ago. Earnings from continuing operations came to $4.4 billion, or 44 cents per share, down 8 percent year-over-year.
That was well below the 51 cents per share expected by analysts surveyed by Thomson Financial for profit from continuing operations. The company itself had forecast a profit of 50 to 53 cents per share.
GE shares fell $4.46, or 12.1 percent, to $32.29 by midday. Wall Street's major indexes were all down more than 1 percent after the report from a company that usually avoids surprising investors.
Just last month, Chief Executive Jeff Immelt had promised investors strong earnings despite the weakened U.S. economy, saying revenue and earnings would rise at least 10 percent this year.
The conglomerate said its strong international exposure helped sustain its balance sheet as the U.S. economy slumps. But GE wasn't able to complete asset sales due to tighter credit markets and was forced to take hefty impairment charges that hurt earnings per share by 5 cents.
"The industrial earnings were up substantially, really led by infrastructure, which remains strong across the board, but the financial services environment was very difficult and became even more difficult late in the quarter," Immelt said in a conference call with analysts.
Immelt cited the near-collapse of the Wall Street investment firm Bear Stearns Cos. as a reason for the performance of GE's commercial business. Bear Stearns accepted a buyout offer from JPMorgan Chase & Co.
"We had planned for a difficult environment," he said. "We had planned for an environment that was going to be challenging, but what I would say is kind of late in the quarter, particularly after the Bear Stearns event, we experienced an extraordinary disruption in our ability to complete asset sales and incurred marks of impairments and this was something that we clearly didn't see until the end of the quarter."
Analysts, however, saw weaknesses in the results beyond the hard-hit financial sector.
Deutsche Bank Securities Inc. downgraded the stock.
"There is no getting away from it. This was a disappointing set of earnings from GE with weakness across the board," analyst Nigel Coe wrote in a note to investors. "The major surprise was that the driver to the downside was not confined to just GE Capital."