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.

Investors fret over GE Capital, as GE shares slide

Investors fret over GE Capital, as GE shares slide

BOSTON/NEW YORK (Reuters) - General Electric Co investors have one big worry these days: Is its hefty GE Capital finance arm -- the main reason for a 2008 profit drop -- poised to handle the worst economic downturn in decades?
Analysts and investors have pounded the U.S. conglomerate's shares to their lowest level since the early 1990s this week as they wrestle with the question of whether the finance operation -- which a few years ago represented half of GE's profits -- is adequately prepared for a surge in defaults by increasingly unemployed consumers and tottering mid-sized businesses.
The fear is that GE's planning for the unit, which anticipates a 42 percent fall in profit and rising defaults, may not be sufficiently bearish.
"It's not as if the world has confidence in any security, but this team has managed to just shatter investor confidence by continually being more upbeat than they deserve to be," said Charles Ortel, managing director of securities research firm Newport Value Partners in New York, which does not hold a position in GE shares.
Investors fear GE Capital's reserves for losses are too low in comparison with the top U.S. banks. Read more...

http://www.reuters.com/article/ousiv/idUSTRE5235NJ20090304