GE's Immelt Doesn't Disappoint This Time

But weakness persists at GE Capital, which lost $150 million pretax for the quarter. GE's NBC, health-care, and transportation units were also down

One year after Jeffrey Immelt's quarter horribilis—when General Electric (GE) shocked Wall Street with a wide earnings miss that left investors reeling—the GE chairman and CEO beat expectations this time around. On Apr. 17, GE announced first-quarter earnings per share of 26¢, beating analysts' 21¢ consensus expectation.

Still, that hardly spelled stellar results for the Fairfield (Conn.)-based conglomerate. GE's total earnings of $2.8 billion were down 35% from a year prior and sales for the embattled giant were $38.4 billion, down 9% from a year before. The primary culprit: GE Capital, the company's large financial unit, which weighed down overall results. While GE met its forecast that the struggling finance unit would be profitable in the first quarter, that outcome was helped by tax benefits. Earnings for GE Capital were $1.1 billion in the fourth quarter, down 58% from a year before. But on a pretax basis, the unit actually lost about $150 million, analysts noted.

GE shares initially fell on the news but were roughly flat in early trading.

Other disappointments included the company's media unit, NBC Universal, where earnings were down 45% from a year prior. Struggling consumers aren't queuing up at its theme parks or snatching up home videos, and pain in the company's broadcast division offset strong cable performance. The health-care and transportation businesses were down, too, with profits off 22% and 15% for the quarter, respectively. GE Capital, of course, posted some painful numbers, with commercial real estate and British mortgage markets deteriorating.

The bright spots? GE's energy, oil and gas, and aviation units, which each posted double-digit profit growth. That's good news given these businesses' cash-generating power, which should help to quiet debates over further dividend cuts or needs to raise capital, analysts noted.

Beyond Earnings, a Memorable 1Q

Still, the recession is taking its toll, with orders for GE's energy equipment falling in the first quarter. Stimulus infrastructure projects should help, but most of the benefits to GE won't be felt until 2010 or later, said Immelt, who sees $100 billion in potential opportunities for GE from global government stimulus spending. Chief Financial Officer Keith Sherin also noted that delinquencies in GE's North American consumer business were stabilizing, a good sign despite rising unemployment.

The first quarter of 2009 will be memorable for the 130-year-old company for reasons beyond its earnings, however. GE lost its vaunted AAA credit rating, which it had held for more than five decades, and it slashed its dividend by 68%, for the first time since 1938. Earlier this year, investors, fretting over whether the finance unit would need to raise outside capital, drove GE's share price to below 6. Since then, the share price has recovered to 12, buoyed in part by an extensive review of GE Capital on Mar. 19, when company executives took investors through some 170 detailed PowerPoint slides and reiterated that they see no need for outside funding for GE Capital.

In the end, notes Credit Suisse (CS) analyst Nicole Parent, it's hard to tell whether the first-quarter results show a glass half-empty or half-full. The earnings "were not disastrous," she wrote in a research note, and showed few surprises. While that may not exactly be a compliment, it's not bad for this environment, either.

Morgan Stanley (MS) analyst Scott Davis noted: "We found very little surprising in GE's 1Q results—which in itself is a positive."

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