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.”
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