GE Q2 profit falls, scales down industrial outlook

GE Q2 profit falls, scales down industrial outlook
General Electric's 2Q profit tumbles 49 pct on finance unit struggles, weak demand for goods

General Electric Co.'s second-quarter profit was sliced nearly in half, the company said Friday, as the recession drove down earnings at its finance unit and smothered demand for its wide-ranging industrial goods.
Although earnings beat Wall Street forecasts by a penny, GE's revenue fell $3 billion short of expectations, helping push down shares 6 percent. Quarterly sales fell across its divisions, from health care to broadcasting, suggesting that the recession is still sapping demand for goods and services.

That appeared to be troubling news for the nation's economic health since GE's businesses touch nearly all facets of the economy and investors were hoping sales would show flashes of strength.

The Fairfield, Conn.-based company is also retreating from a more optimistic outlook for its industrial businesses that make everything from microwaves to wind turbines. It's now saying those divisions could break even rather than show a profit this year.

GE 's second-quarter net income totaled $2.6 billion, or 24 cents per share, after paying preferred dividends. That fell 49 percent from $5.1 billion, or 51 cents per share, a year earlier. Revenue declined 17 percent to $39.1 billion.

Analysts polled by Thomson Reuters expected GE to earn 23 cents per share on revenue of $42.16 billion.

The first half of 2009 has been a difficult one for GE, one of the world's largest companies. It cut its dividend sharply to preserve cash, lost its vaunted Triple-A credit rating, and saw its share price plummet on fears that things could get worse for its lending unit.

GE Capital, which lends money on everything from credit cards to commercial real estate, posted a modest profit of $590 million in the second quarter. But those results were 80 percent lower than a year earlier, further proof that GE Capital is struggling with losses on bad loans. GE boosted reserves for loan losses to $6.6 billion during the quarter.

Still, GE Capital "remains on track to be profitable for the full year," Jeff Immelt, GE's chief executive, said.

GE Capital has tried to compensate for its weaknesses by scaling back its reliance on riskier debt and lowering costs through steps like cutting staff. It has also been helped by tax credits that helped it dodge a loss during the first three months of the year.

But GE Capital's second-quarter earnings show that the unit continues to face serious challenges. For example, GE's real estate unit, which owns office buildings and makes loans for commercial properties, posted a $237 million loss compared with $484 million in profits a year earlier.

"We are still very cautious about the real estate outlook," said Keith Sherin, GE's chief financial officer.

The company plans to give a detailed review of GE Capital later this month, the second time this year it will open its books as it tries to convince investors that there are no big losses lurking.

As GE Capital founders, the company has looked to its industrial divisions for stability. But those businesses, which make products like home appliances, train locomotives, diagnostic equipment for hospitals and jet engines, have also struggled during the recession.

GE said Friday that its industrial units should just break even this year. Previously, the company had said earnings could reach $5 billion. Read Article... http://finance.yahoo.com/news/GE-Q2-profit-falls-scales-apf-2602881202.html?x=0&sec=topStories&pos=3&asset=&ccode=


Comment Trendsbridge: Of all the troubling signs the Economy is not back on track and the crisis is not over yet this is one of the worst.

Optimism fading

Optimism fading
(01:53) Report

Jul 2 - The Dow closed lower for the third consecutive week as larger-than-expected job cuts added to signs a U.S. economic recovery could be sluggish.
Conway Gittens reports.

Cycle of rising unemployment, foreclosures and bankruptcies raising economic stress

AP analysis: Economic stress up in much of nation
Cycle of rising unemployment, foreclosures and bankruptcies raising economic stress

(Source AP) California, Michigan and South Carolina suffered the most financial pain in May as unemployment, home foreclosures and bankruptcies rose, according to The Associated Press' monthly analysis of economic stress in more than 3,100 U.S. counties.

The latest results of the AP's Economic Stress Index show the worst financial crisis since the 1930s causing lingering damage even as other signs suggest the recession is winding down.
The average county's Stress score, fueled by worsening unemployment, foreclosures and bankruptcies, rose to 10 in May, from 9.7 in April.

In May 2008, the average Stress score was 6.2. The pain was lower then because the economy was still expanding. In fact, the second quarter of 2008 was the last time the economy grew.

The AP calculates a score from 1 to 100 based on each county's unemployment, foreclosure and bankruptcy rates. The higher the score, the higher the economic stress.

Under a rough rule of thumb, a county is considered stressed when its score zooms past 11. In May, 36 percent of the counties scored 11 or higher, up from 34 percent in April. But the latest reading was slightly better than February and March, when nearly 40 percent of counties were at or above that threshold.

Federal Reserve Chairman Ben Bernanke and many other economists predict the recession will end later this year. Even if it does, unemployment, foreclosures and bankruptcies are likely to keep climbing and cause further harm in many communities, economists predicted.

"The pain will linger well after the recession is over, making for a subdued economic recovery," said Richard Yamarone, economist at Argus Research.

Many economists say the recession eased from April to June and that the economy might start growing again as soon as the current July-to-September quarter.

Among states, California, Michigan and South Carolina showed the most economic stress in May, with their counties' scores averaging 16, 15.9 and 15, respectively, the AP analysis shows.
California has been battered by the housing bust, and Michigan has absorbed the brunt of the auto industry crisis.
"And South Carolina is a little bit of everything," said Sean Snaith, economics professor at the University of Central Florida. "Manufacturing and construction jobs have been hard hit in the state."
One common thread running through all three states is heavy jobs losses. Rising unemployment, in turn, is escalating foreclosures and bankruptcies.
The rising economic stress comes as California, saddled with a whopping $24.3 billion budget deficit, and other states are scrambling to cope with fiscal crises. Read More...
http://finance.yahoo.com/news/AP-analysis-Economic-stress-apf-2726778711.html?x=0&sec=topStories&pos=4&asset=&ccode=