NEW YORK (AFP) — General Electric said Friday its profits took a hit from global credit market turmoil and downgraded its outlook ahead, heightening fears for a struggling US economy.
The broadly diversified conglomerate, seen as a microcosm of the US economy, reported a first-quarter profit of 4.3 billion dollars, down six percent from a year ago.
The results came in sharply below Wall Street expectations and, along with the weaker outlook from GE, sent shock waves through global stock markets.
GE shares tumbled 12.8 percent and dragged down indexes in Europe and the United States.
The overall profit amounted to 43 cents per share, far below analyst forecasts of 51 cents a share.
"GE's news raises the market's nervousness level for not only financial companies, but the large domestic industrial and commodity-based companies," said Frederic Dickson, analyst at DA Davidson & Co.
"The size of GE's earnings miss in the first quarter has undoubtedly led GE to be very conservative with its outlook since it is not in the company's nature to miss its guidance marks," added Patrick O'Hare at Briefing.com.
GE, which produces jet engines, locomotives, water treatment plants and medical equipment, has a major finance arm and controls the media-entertainment giant NBC Universal, said it was not immune from the woes of the broad economy.
GE's report was seen as "confirming the negative effect of the March meltdown of Bear Stearns on all financial services companies as well as the continuing weakness in consumer spending," said Sherry Cooper, chief economist at BMO Capital Markets.
"What has rattled the markets the most is that GE earnings are usually right on, or a penny above, expectations. Many are questioning why the company did not issue a warning, which only contributes to the uncertainty," she said.
"Having seen how quickly a company like Bear Stearns can turn, investors and lenders are leery of even blue chip investments and creditors. GE is the biggest US corporate borrower."
The company sharply scaled back its earnings forecast for the second quarter and full year, amid troubles for its commercial and consumer finance operations.
"Our primary shortfall was a decline in financial services earnings," said GE chairman and chief executive Jeff Immelt.
"We knew the first quarter was going to be challenging, but the extraordinary disruption in the capital markets in March affected our ability to complete asset sales and resulted in higher mark-to-market losses and impairments."
First-quarter revenues from continuing operations were 42.2 billion dollars, up eight percent, GE said.
"While we are disappointed with our results, the fundamentals of our businesses are strong," Immelt added.
"We take full accountability for our performance and are making the right operational adjustments for this environment."
GE's Infrastructure division, which makes wind turbines, jet engines and locomotives, saw operating profits rise 17 percent to 2.6 billion dollars as revenues grew 23 percent. But most other segments were weak.
Its Commercial Finance arm took a sharp hit as profits fell 20 percent to 1.16 billion dollars even though revenues increased seven percent. And GE Money, its consumer finance arm, witnessed a 19-percent slump in profit to 995 million dollars on a seven-percent revenue increase.
The Industrial segment, which makes appliances, lighting and security systems, reported a 16-percent slump in profit to 300 million dollars as revenues edged up only one percent.
NBC Universal, which owns Universal Studios and the NBC television network, saw flat revenues but profits rose three percent to 712 million dollars.
GE Healthcare's profit fell 17 percent as revenues were flat.
Copyright © 2010 AFP. All rights reserved. More »
