GE Earnings Tumble 47% on Finance Troubles

Posted by: Jena McGregor on July 17, 2009

In a week when large banks wowed Wall Street with higher profits, diversified conglomerate General Electric, which has its own major finance business, also posted better-than-expected earnings results. The Fairfield, Conn.-based bellwether’s earnings per share was $0.26, higher than analysts’ $0.23 estimates.

Still, second-quarter earnings of $2.9 billion were down 47% from the year prior, and revenues, at $39.1 billion, were down 17%, a deeper drop than Wall Street expected. Profits at the company’s struggling finance unit were, not surprisingly given the environment, down steeply—by 80%—but most of GE’s industrial units suffered, too. Earnings fell from the year before in all of GE’s business units except energy infrastructure, with profits at NBC tumbling 41% as an advertising slump and one-time impairments damaged results.

Typically hosted just by CEO Jeffrey R. Immelt and CFO Keith Sherin, the morning earnings call included a guest star, general counsel Brackett Denniston. After the Treasury department’s financial services industry overhaul proposed a separation of financial and non-financial units, analysts have speculated that GE could be forced to sever its finance unit from its industrial parent. Calling it “probably the most sweeping proposal in U.S. financial services history,” Denniston said GE is staunchly opposed to the proposal and remains committed to its finance unit. When analysts, who noted the proposal almost seemed to target GE, asked what kind of scenario plans the company has been working on if the proposal did go through, Denniston responded by saying that the company is already focused on getting the unit to be smaller and more focused. Immelt too underscored the point, saying “we’re very committed here” with an emphatic chuckle.

Despite the earnings tumble, there was good news in the quarter, with GE saying it was ahead of its plan to generate cash and the company touted its strong business servicing existing equipment. Immelt noted that while it’s yet to see “almost nothing” from stimulus spending, it could begin reaping some of the potential $190 billion in stimulus gains the company expects to receive. And the company noted that its U.S. consumer finance business, while down from the year before, was better than the “base case” economic outlook it presented in March.

Still, Wall Street’s concerns seemed to outweigh those positive signs, with GE shares down about 5% in early trading. Perhaps one worry is the company’s “framework” for the rest of the year. (GE no longer provides earnings forecasts—as Immelt noted in the call, “we’re kind of out of the guidance business”—choosing to refer to a “framework,” instead.) While the company maintained its broad outlook that GE Capital would be profitable in 2009, it’s now saying that earnings from its industrial businesses will be flat, rather than between flat and up 5%.

Reader Comments

Randy Bush

July 17, 2009 11:12 AM

GE has enfornced a salary freeze for most of its US and worldwide employees throughout all the salary bands. Without this salary freeze, the earnings would have been less by atleast half a billion, probably matching analysts expectations of 0.23 cents a share.

Thomas Huynh

July 17, 2009 12:27 PM

This is the calm before the storm ... of cash. It's perhaps hard to see better days in this tough economic environment but GE is set to receive $190 BILLION dollars of work in the near future. Let's also not forget despite lower revenues, it has managed well to provide shareholders the expected earnings; judge not the company for the industries it's in but the quality of its management.

Sincerely,
Thomas, founder
Sonshi.com

Bob

July 17, 2009 3:28 PM

Jeff knows that the Derivatives he has is going to kill his company. Address it now, because its going to kill you later.....

Payday Loans

July 17, 2009 5:10 PM

Payday Loans

July 17, 2009 5:11 PM

Frank B. Leibold, PhD.

July 18, 2009 11:16 AM

"A Nation Still at Risk: 25 Years of Failed Efforts" is a book that chronicles 25 years of unsuccessful efforts by 18 respected professional organizations, with over 67 reports/white papers, to close America's Global Skill Gap. Demograhic trends of baby-boomer retirements and younger professionals seeking multiple careers threatens to further widen the gap. It is now imperative that the nation addresses this vexing and persistent problem. America's quarter century of global economic dominance due to scale, innovation and academic achievement will end in 2040 when China will have the largest economy and India a population greater than China.

The book develops six universal lifelong transferable competencies(LTC) required to succeed in any occupation and needed to help close the skill gap. They are validated by over 40 research studies from multiple disciplines.

The failed efforts of the past 25 years have been due to a lack of general public exposure, and resulting lack of a national will, because of the narrow focus of those 18 organizations.

The book ends with suggestions on how business, education, professional and government organizations can play an important role in finally ending this threat to our very way of life.

What is needed is an Obama administration summit and following initiative similar to the man on the moon and energy independence initiatives.

Michelle

December 5, 2009 1:12 AM

It looks like GE just shed 51% of NBC to Comcast for a cool $14 Billion - so that's bound to help.

I think that it was fashionable in the '80's for companies to vertically integrate, and then in the '90's a lot of them had so much cash, they went horizontal. They started getting into businesses that were beyond their expertise.

I would not count on GE getting all of these green technology contracts. People are getting very fed up with all of this green movement that is going to cost us a fortune - and at a time when we are so broke as a nation. Regardless of how close Immelt is to Obama, giant contracts in the green sector will be hard to come by. Just look at the scandal in the scientific community on mining the data to make the case for global warming.

I personally do not think that GE is safe. They were once the gold standard in the commercial paper market. They need to keep divesting and get closer to their core business model that once made them so great.

diets that work

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