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GE Falls Most Since May as Revenue Drops, Lags Behind Estimates

General Electric Co. chief executive officer Jeffrey Immelt. Photographer: Aaron M. Sprecher/Bloomberg
General Electric Co. chief executive officer Jeffrey Immelt. Photographer: Aaron M. Sprecher/Bloomberg

July 16 (Bloomberg) -- General Electric Co. fell the most since May in New York trading as second-quarter sales trailed analysts’ estimates on fewer shipments of products such as turbines and railroad locomotives.

Revenue slid 4.3 percent to $37.4 billion, lagging behind the $38.3 billion average estimate of 9 analysts surveyed by Bloomberg. Profit from continuing operations rose 14 percent to $3.3 billion, or 30 cents a share, GE said today. That beat the 27-cent average of 12 estimates.

Sales decreased in the technology, energy and finance units at GE, the world’s biggest maker of jet engines, power-plant turbines and medical-imaging equipment. The profit gain snapped seven declines in per-share earnings as Chief Executive Officer Jeffrey Immelt stemmed loan losses and boosted reserves over the past two years at GE Capital.

“People were prepared for a GE Capital revenue miss,” said Jeffrey Sprague, co-founder of Vertical Research Partners LLC in Stamford, Connecticut. “But industrial revenues missed my estimate by $1 billion and cash flow is down.” He rates GE as “hold.”

GE’s revenue decline was “right in line with our expectations,” Chief Financial Officer Keith Sherin said in an interview.

Shares Decline

GE fell 70 cents, or 4.6 percent, to $14.55 at 4:15 p.m. in New York Stock Exchange composite trading. That was the biggest drop since May 20, and the fourth-worst performance among the 30 stocks in the Dow Jones Industrial Average. The shares have lost 3.8 percent this year.

Net income increased 16 percent to $3.11 billion, the Fairfield, Connecticut-based company said. Profit from continuing operations a year earlier was $2.88 billion, or 26 cents a share.

Total equipment orders rose 17 percent, while the backlog held steady at about $172 billion, according to GE. Revenue was damped by a drop in large turbine shipments and in so-called progress payments for gas turbines, or payments made as the equipment is being built, GE said.

“We have positives and negatives,” Immelt said on a conference call. “We’re still positioned for attractive earnings growth in 2011.”

Immelt said in May that full-year results would exceed GE’s original December projection, and today repeated his expectation for an increase in the dividend next year. GE cut its dividend in 2009’s first quarter, the first reduction since the Great Depression, to preserve cash and shore up the finance division. GE Capital had pretax profit of about $700 million, Immelt said.

Earnings Framework

GE doesn’t provide per-share forecasts, instead giving investors a framework of information to devise their own. Earnings for 2010 will be $1.09 a share, based on the average of 14 analysts’ estimates.

The finance unit has improved to the point that GE doesn’t expect to have to add capital in 2011 as initially planned, CFO Sherin said. The division’s traditional payout to the parent company may resume in 2012. GE said previously it expected to inject about $2 billion into GE Capital in 2011.

“GE is, I think, on track again,” James Hardesty, president of Baltimore-based Hardesty Capital Management, which owned about 508,000 GE shares as of March 31, said in a Bloomberg Television interview. “It’s been reinventing itself for some time because it became somewhat overdependent on financial services.”

Division Results

Profit in the GE Technology Infrastructure segment fell 11 percent on a 6 percent sales decline because of fewer locomotive shipments and a drop in the aviation division. Earnings and revenue increased in the unit’s health-care segment.

Growth in health-care equipment orders may continue through the end of 2010, partly because of easy comparisons with the first three quarters of 2009, Steven Winoker, an analyst with Sanford C. Bernstein & Co., wrote in a note to clients.

GE Energy Infrastructure sales fell 9 percent as profit increased 3 percent, driven by oil and gas equipment and service contracts.

“By and large the results are good,” said Joel Levington, managing director of corporate credit at Brookfield Investment Management Inc. in New York. “Technology and Energy outperformed expectations for sales and profitability. Capital remains a work in progress -- particularly in real estate, but data points are building that the worst is behind the unit.”

GE Capital Outlook

GE Capital profit rose 93 percent, overcoming a drag from its commercial real estate unit, while comparisons in its other divisions improved amid an economic recovery. Revenue declined 3 percent as the stronger U.S. dollar ate into overseas sales.

While regulators may take months to craft the rules for Congress’s Wall Street oversight bill, GE has prepared to have the finance unit supervised by the Federal Reserve and plans to fill the likely capital requirements, CFO Sherin said on the conference call.

“For the risks that we take in our business, we feel like we’re very strongly capitalized,” Sherin told investors. “Whatever is going to come at us, we’re going to be able to deal with on our own.”

GE plans to shrink the unit to as little as 30 percent of profit as it trims parts of the business, including real estate and consumer finance, and should reach $500 billion in assets by the end of this year, Sherin said on the call. That means the company expects to reach its 2012 goal of $440 billion in net earning investment, a measure of assets, he said.

GE said yesterday it would sell its BAC-Credomatic unit to Grupo Aval Acciones y Valores SA, Colombia’s biggest financial holding company, for $1.9 billion.

NBC Universal, in which GE plans to sell a majority stake to Comcast Corp., improved in the quarter, posting gains of 5 percent in revenue and 13 percent in profit. The deal still requires regulatory approval.

To contact the reporter on this story: Rachel Layne in Boston at rlayne@bloomberg.net.

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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