GE Profit Falls 45% as Revenue Trails Estimates

General Electric Co.’s third-quarter profit declined 45 percent as the company scaled back real estate and consumer lending and sold fewer medical machines, leading to a steeper drop in sales than analysts projected.


Chief Executive Officer Jeffrey Immelt is shrinking the finance unit and weighing a reduced stake in NBC Universal as he builds energy, transportation and health-care businesses to help emerge from the recession. The GE Capital plan is ahead of schedule, Immelt said on a conference call after today’s earnings report. Higher losses in consumer finance and fewer real estate transactions reduced the unit’s profit and sales.

“The quarter looks mixed, with revenues disappointing,” said Joel Levington, the director who tracks GE for Brookfield Investment Management Inc. in New York.

Profit from continuing operations declined to $2.45 billion, or 22 cents a share, from $4.48 billion, or 45 cents, a year earlier, the company said in a statement. The average profit estimate of 13 analysts in a Bloomberg survey, excluding some items, was 20 cents a share. Results include 5 cents a share of restructuring costs, GE said.

Revenue fell 20 percent to $37.8 billion, trailing the average estimate of $39.7 billion. The figure was “in-line with our expectations,” GE said in the statement.

Fairfield, Connecticut-based GE fell 34 cents, or 2.7 percent, to $16.34 at 8:54 a.m. in trading before the opening of the New York Stock Exchange. The shares gained 3.6 percent this year through yesterday.

Orders and Backlog 

Total orders declined 18 percent, and equipment and service contract cancellations remain “insignificant,” GE said. Large equipment orders in the so-called infrastructure divisions also fell 18 percent from a year earlier, a slower pace than the second quarter’s 44 percent drop. The total backlog rose about 2 percent to a record $174 billion.

The third quarter was likely the low point in orders, Immelt said today on a conference call with analysts.

Profit rose 11 percent at GE Energy Infrastructure, while GE Technology Infrastructure declined 8 percent, dragged down by lower results at health care, locomotive and factory automation units. NBC Universal posted a 13 percent increase. GE Capital posted profit of $263 million, an 87 percent decline, with only the GE Real Estate segment recording a loss.

“While it remains a tough environment for GE Capital, we are seeing signs of stabilization,” Immelt said in the statement. The segment has completed its plans to refinance debt in 2009 and is more than 90 percent of the way in meeting its need for 2010, the statement said.

Paring Businesses 

GE’s businesses include the world’s biggest makers of jet engines, locomotives and medical-imaging machines. Its power- generation equipment produces about a third of the world’s electricity. Immelt is seeking sales from emerging markets such as China, India and the Middle East, and more than half of all GE’s sales come from outside the U.S.

Cash generated from the company’s non-financial divisions was $4.4 billion in the quarter and $11.4 billion year-to-date, putting GE on track to reach $15 billion, Immelt said in the statement.
“This company is on track now to get back to what I think it’s capable of doing,” James Hardesty, president of Hardesty Capital Management, which holds GE shares, said today in an interview with Bloomberg Television.

Cost Reductions 

GE spent $600 million on cost reductions in the quarter, knocking about 5 cents a share off profit and bringing total year-to-date expenses to cut jobs, shut offices and consolidate some plants to $1.3 billion.

GE Capital, helped by tax credits, had a $997 million loss before taxes, spokeswoman Anne Eisele said. The company’s revenue was hurt by a stronger U.S. dollar than in last year’s third quarter. The consolidated tax rate was a negative 25 percent, driven by the GE Capital credits.


GE shares have almost tripled from an intraday low of $5.73 in March as Immelt began paring assets at GE Capital and emphasized businesses such as power generation. Immelt, 53, has said he plans to reduce GE Capital’s assets to $400 billion to $450 billion, from about $557 billion in the second quarter, by concentrating on mostly commercial lending.

The company is preparing to cut its stake in NBC Universal in a deal with Comcast Corp. and may divest the media unit entirely in seven years, according to people familiar with the discussions. The company is also looking to sell its GE Security unit, people familiar with GE’s plans said in August. Immelt previously marked the GE Consumer & Industrial unit and the private-label credit card division for sale, only to pull them off the block when buyers evaporated in the financial crisis.

Selling NBC Universal 

“You can’t sell them for under net asset value or below book value,” Nicholas Heymann, an analyst at Sterne Agee & Leach Inc. in New York, said in an Oct. 10 interview. “They don’t have much room and freedom for taking charges. This is why we haven’t seen lighting sold, appliances sold, security sold.”
Selling NBC Universal may help alleviate investor worries that GE would need to raise more capital for the finance division under guidelines yet to be set by legislators in Washington, analysts including Bank of America-Merrill Lynch & Co.’s John Inch wrote in notes to investors this week.

“I don’t think NBC strategically fits with his view of GE going forward as sort of the green company,” Hardesty said of Immelt.

- Via Bloomberg