General Electric Co. (GE:US) fell the most in almost a year after cutting its 2012 sales target amid lower finance-unit revenue and reporting weaker third-quarter demand for some industrial equipment.
Full-year sales will climb about 3 percent instead of the 5 percent projected last month, with GE Capital revenue falling by 10 percent, GE said. Quarterly sales rose 3 percent to $36.3 billion, short of the $36.9 billion average analyst estimate (GE:US). Adjusted profit of 36 cents a share matched projections.
GE has bolstered manufacturing and reduced its finance unit’s size after billions of dollars in credit losses in the financial crisis. It’s grappling with tougher markets for products like jet engines and health-care imaging equipment as airlines delay non-essential repairs to save cash and European hospitals contend with government austerity programs.
“Our expectations were higher going into earnings today,” Steven Winoker, an analyst at Sanford C. Bernstein & Co. who has a market perform rating on the stock, said in an e-mail today. “We did expect some messiness to the numbers but we thought GE would find a way to pull out all stops and beat estimates.”
GE fell (GE:US) 3.4 percent, the most since Nov. 9, to $22.03 at the market close in New York as it joined manufacturing companies from Honeywell International Inc. (HON:US) to Ingersoll Rand Plc in paring revenue forecasts.
Adjusted earnings from continuing operations rose 10 percent to $3.8 billion, GE said. Including pension costs and other expenses, net income for the parent company climbed 49 percent to $3.49 billion, or 33 cents, from $2.34 billion, or 22 cents, a year earlier.
The Fairfield, Connecticut-based company maintained its full-year profit outlook, predicting growth of at least 10 percent. Chief Executive Officer Jeffrey Immelt is still squeezing higher earnings from industrial businesses, with quarterly profit margins rising for the first time since 2010.
Sales dropped 1 percent in both aviation, which posted sales of $4.78 billion, and health care, which garnered $4.31 billion. Total infrastructure orders fell to $21.5 billion, GE said.
GE Capital revenue declined 5 percent to $11.4 billion in the quarter as ending net investment, a measure of assets, decreased $27 billion, ahead of the company’s goal, GE said. The unit’s sales will fall 10 percent this year, which prompted the sales-outlook reduction, the company said.
Immelt pledged to shrink GE Capital after $32 billion of credit losses following the 2008 collapse of Lehman Brothers Holdings Inc.
The lower-than-expected sales and reduced outlook (GE:US) shouldn’t obscure GE’s strong operating performance, Chief Financial Officer Keith Sherin said in a telephone interview.
With organic industrial revenue growth of 8 percent in the quarter “and on target for 10 percent for the year, that’s a great performance in this uncertain economic backdrop,” Sherin said.
The industrial order backlog was $203 billion, while earnings in that group of businesses climbed 11 percent to $3.57 billion. Their profit margin expanded to 14.4 percent, the first year-over-year improvement since the fourth quarter of 2010, according to data compiled by Bloomberg.
“The industrial profit improvement was well telegraphed,” Matt Collins, a St. Louis-based analyst at Edward Jones who has a hold rating on the stock, said in an e-mail. “Now it’s about what happens in 2013 and beyond. The backlog remains strong but the order decline cast a cloud over that outlook.”
Demand in the unit that makes imaging equipment used in hospitals was tempered by questions on U.S. health-care policy in a presidential election year as well as the European slowdown, John Dineen, the unit’s head, told investors in late September.
“I’ve got good, bad and ugly in every part of the world here,” he said then.
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