GE Profit Drops as Expected, Finance Unit a Drag

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Global Markets Fuel Concern Over Economy

Global stock markets continue to fall as Japan's main stock index plummeted nearly 10 percent Friday. European indexes followed suit, with main exchanges down from 7.5 percent in London to nearly 10 percent in Germany and France. In the U.S., President Bush made a statment on the crisis in the credit markets that has caused widespread sell-offs on Wall Street.

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By Scott Malone

Reuters
Friday, October 10, 2008; 10:13 AM

BOSTON (Reuters) - General Electric Co (GE.N) reported a drop in quarterly profit that matched its recent warning to Wall Street, and the U.S. conglomerate said the global credit crunch and slumping economies would continue to take a toll on its hefty finance arm.

GE shares notched an 11-year low in volatile trading on Friday before recovering a 2.6 percent gain after posting a 22 percent drop in net income.

Its profit was weighed by a 33 percent fall at GE Capital, overshadowing growth at its infrastructure arms, which were buoyed by solid demand for electricity-generating turbines and jet engines.

"The global financial system is tough," said Chief Executive Jeff Immelt, on a conference call with investors. "We try to think and do our planning just based on the fact that there's more risk, just given what's going on in the global environment."

The company, which is regarded as an economic bellwether due to the size and breadth of its operations, confirmed its 2008 earnings forecast of a profit drop of up to 12 percent.

GE posted earnings of $4.31 billion, or 43 cents per diluted share, down from $5.56 billion, or 54 cents per diluted share, a year earlier. Profit from continuing operations was down 12 percent.

The continuing operations profit of 45 cents per share matched the revised average Wall Street estimate as compiled by Reuters Estimates.

Revenue rose 11.1 percent to $47.23 billion.

"There's not a lot of warm comfort here but it's a good report," said Peter Sorrentino, senior vice president and portfolio manager at Huntington Asset Advisors in Cincinnati. "There was nothing horrific on the finance side."

MARGIN CONCERNS

Profit margins at the company's industrial units, which also make high-tech medical imaging equipment and railroad locomotives, did not show as much lift from the recent easing in commodity costs as some investors had expected.

"Industrial margins were considerably weaker than we had expected," wrote Deutsche Bank analyst Nigel Coe, in a note to clients.