GE Net Down 44%

Posted by: Jena McGregor on January 23, 2009

General Electric reported fourth quarter net earnings that slid 44% to $3.7 billion from the fourth quarter of 2007, when GE earned $6.7 billion. And that, in a sign of how fearful investors have become, was seen as good news by some investors in pre-market trading, when GE shares were lifted. The conglomerate’s earnings, which were impacted by a $1.5 billion restructuring charge, were in line with expectations.

But the relief didn’t last long: As investors continued to fret over the safety of the company’s dividend and AAA credit rating, GE’s shares fell more than 6% in early trading. Those concerns have been hurting GE’s shares in recent weeks, especially following the December move by Standard & Poor’s to change the outlook for GE’s rating from negative from stable. Chairman and CEO Jeffrey Immelt reiterated the company’s plans to maintain its dividend for 2009 and reaffirmed the company’s intention to run the company to also maintain its AAA rating.

A number of analysts believe one of the two stands a chance of getting cut. “As 2009 unfolds, we believe GE is likely to face a serious decision: whether to try to sustain its dividend or allow its AAA credit rating to be reduced,” wrote Sterne Agee in a research note. “While neither of these outcomes is a certainty, the probability that one or both could occur during 2009 has increased sharply.” Credit Suisse analyst Nicole Parent, meanwhile, believes if Immelt had to make that decision, he’d choose the dividend. “We believe GE’s preference when push comes to shove is to maintain the dividend, even at the expense of the AAA,” she wrote in a Jan. 21 research note.

Immelt, meanwhile, says he refuses to make that choice. When asked on CNBC this morning whether, if forced to choose, he’d pick to protect the dividend or the AAA rating, Immelt wouldn’t. “I just don’t go there,” Immelt responded. “It’s like ‘do I believe in revenue growth or cost cutting?’ If I let one of my managers came in and say ‘I’ve got to do my revenue growth, so I can’t cut costs,’ I’d throw them out.”

The company also announced full year earnings of $18.1 billion, down 19% from the year before. Still, the company says that is the third-highest year in the company’s history. Some businesses were strong: segment profit for the energy and oil & gas businesses rose 27 and 31 percent for the year, respectively, while the conglomerate’s capital finance business fell 29%. The company said orders for its infrastructure equipment declined 6% in the fourth quarter while the backlog of equipment and services was up 9%.

One interesting question raised this morning: How much will results from General Electric, long considered a major economic bellwether, actually impact the market? With the company offering less guidance, and with an increasingly murky global picture—Asian and European markets were both down today—some traders are looking elsewhere. Said Peter Yastrow of DT Trading on CNBC this morning: “I’ve had to find another bellwether.”

Reader Comments

FBEye

January 23, 2009 10:18 AM

GE will continue to see their sales & profits decline throughout 2009, 2010, & into 2011. This recession will continue on for at least 3 more years because the FORECLOSURES in the USA are projected to be around 5 MILLION in 2009 & 2010. Job losses will also continue. The WORLD economy has contracted, and will continue to contract. GE didn't see the future. Only companies that DID see the future will prosper. That's why Apple & Google and a few others will do well. "The times, they are a changin'." - Dylan

Hugo van Randwyck

January 23, 2009 10:54 AM

GE revenue in Q3, 2008, $47.2 billion. GM revenue in Q3, 2008, $37.9 billion. So GE profits fell. Maybe GE is too big. GE has many different businesses almost like being a pension company. Which GE businesses did well, which didn't, and look at selling off some business units.

Matt

January 23, 2009 10:57 AM

Looks like it is time for Six Sigma Project...... I wonder what the critical X will be?

Matt2

January 23, 2009 11:42 AM

Note how the inflamatory headline was anchored by the statement in the 1st paragraph, ie yea, down 44% but that met expectations. Too many authors just fanning flames to keep their job. I'm sorry, Apple & Google predicted the crash? I didn't hear that. I thought basically every company is being affected right now. Yea GE is big and that has some disadvantages for a radically transient market. However GE isn't slow like a big conglomerate and they have many strengths to push through this cycle. I bet on a company that has survived countless cycles, not on a headline. They will keep their AAA, dividend and perform. Period.

GloomBoom.com

January 23, 2009 11:56 AM

Immelt has run this company into the ground. He was losing money before the economic crisis and hopefully the board will fire him. Get a clue!!

Jena McGregor

January 23, 2009 11:58 AM

Hi Matt,

Thanks for reading. The headline is a fact; we also note in the first paragraph of the post that the earnings were in line with expectations. It was in no way whatsoever intended to be inflammatory.

Immelt's comparison to growing revenues and cutting costs is a good one, and nowhere do I say that he shouldn't be trying to manage both for the AAA and the dividend, only that analysts are raising questions about whether the company will be able to keep both.

The discussion reminds me of what Jim Collins says about the "tyranny of the OR" in his bestseller "Built to Last." Too often, he says, companies believe they have to choose between, say, creating wealth for shareholders or doing good in the world. Collins says this "pushes people to believe that things must be either A OR B, but not both. ... Instead of being oppressed by the 'Tyranny of the OR,' highly visionary companies liberate themselves with the Genius of the AND."

It's a point I'm sure Immelt is thinking about.

thomas

January 23, 2009 12:19 PM

Six Sigma Project... ha ha ha
blackbelts ha ha ha ha. NOT!
The saddest part is that these arrogant people are invading health care systems. Again a clear example of not QUANTIFYING results. How many people can afford health care insurance?
Give US health care not insurance.

Matt2

January 23, 2009 12:54 PM

Jena, it appears I misintepreted your intent. Not quite as nefarious as I initially though :) You make a good point about OR ... AND. More eloquent than I would state. I totally agree, and further a quarterly focus vs annual or semi-annual is ridiculous IMHO. ---> To Thomas, 4D ultrasound is a miracle for those that need it -- sorry if some misuse it for a knee scrap and that drives up your premium.

RICHARD

January 23, 2009 1:11 PM

I REALLY BELIEVE THAT GE IS OVERDUE FOR A CEO CHANGE. JEFF HAS NOT DELIVERED. CHANGE HIM AND BRING BACK JACK

Ward

January 23, 2009 2:46 PM

"How much will results from General Electric, long considered a major economic bellwether, actually impact the market?"

Great question. When I listened to the conference call the GE bigwigs still sound like they did in the late 1990s. If they are intent on doing things like we did in the last century I don't expect them to be a leader for the 21st century.

Some more thoughts on GE culture:
http://lifeinperu.com/2009/01/23/ge-releases-4q-earnings/

PeakOiler

January 23, 2009 4:22 PM

Doubling down on GE - 4th time!

hahahaha!

let's hope this is the low!

Bill Rothschild

January 24, 2009 3:39 PM

I still assert that GE's current problems are self imposed. Two years ago, the GE annual report headlined GO BIG and promised to deliver 8% compounded INTERNAL growth. In my book, I said this was impossible and that Immelt created expectations that he could not deliver. The facts speak for themselves.
Immelt has not created two other expectations...keeping the Triple A and sustaining dividends... I hope that the company has done sound, objective strategic analysis and thinking and can "do what they say".
GE has had several other periods in its 127 year history when it failed to meet expectations, but it admitted it made a mistake and ADAPTED to changes...
Immelt must deliver on his promises.

Bill Rothschild, author of THE SECRET TO GE's SUCCESS...which includes learning from its failures.

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