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%.
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