GE profit falls 46%, meets analysts' lowered expectations

WASHINGTON -- In a discouraging report for the American economy, General Electric ge posted a 46% drop in quarterly earnings Friday and warned of a "tough environment" in 2009 as it struggles with its ailing finance business.

The news caps a difficult year for one of the world's largest companies. Its businesses touch on most sectors of an economy mired in a recession, from lightbulbs and TV stations, to jet engines. And its longtime profit engine, GE Capital, has seen profit tumble as the slowdown forces business and consumers to limit borrowing or default on loans.

And although the company reaffirmed plans to both pay its $1.24 dividend and defend its top "AAA" rated credit on Friday, its shares fell more than 5% in midday trading as investors worried they were vulnerable.

"The environment in total is very tough," GE's Chief Executive Jeff Immelt told analysts on the company's conference call.

GE reported earnings of $3.65 billion, or 35 cents a share, after paying preferred dividends. That was down from $6.7 billion, or 66 cents a share, a year earlier.

Results included $1.5 billion in charges related to the restructuring of GE Capital and increased reserves. The company also recorded $1.38 billion in tax benefits during the quarter.

GE's earnings from continuing operations before preferred dividends matched the diminished Wall Street expectations of 37 cents a share, according to analysts polled by Thomson Reuters.

Quarterly revenue slipped 5% to $46.2 billion.

"While GE clearly is being impacted by recession and its financial business is being impacted by the financial meltdown, they are navigating it," said David Katz, chief investment officer of Matrix Asset Advisors. "They are getting through, they are earning money through it."

The company is preparing for what should be a difficult 2009 as it pares down GE Capital, reduces its dependence on risky debt and tries to maintain growth on its industrial side as the recession worsens.

But the company, the only original member to remain in the Dow Jones industrial average, stood by its 2009 outlook.

GE has ceased providing numeric per-share profit targets, instead opting to spell out a "framework" for how its individual businesses will perform. That calls for profit at its infrastructure units and its NBC Universal unit to be flat to up 5%, with GE Capital profit down about 40%.

GE said its provisions for loan losses at GE Capital will be $1 billion greater than originally forecast and that total orders are down 6% in its industrial division.

In its industrial divisions, sales in the aviation unit that makes jet engines rose 2% to $5.1 billion. The transportation unit, which makes equipment like locomotive engines, saw sales rise 20% to $1.4 billion. Sales of energy infrastructure equipment, which includes turbines for power plants, rose 21% to $11 billion. The medical equipment-making health care unit posted a 3% decline in sales to $4.8 billion.

But GE Capital, which makes consumer and commercial loans, was hit by the crisis that left many banks and financial institutions short of cash and stuck with bad debts. Earnings at GE Capital fell to $1.03 billion from $3.16 billion a year earlier. GE Capital has joined federal programs designed to help lenders raise cash and the company expects its credit losses from bad loans to rise to $9 billion this year.

GE embarked on a restructuring program last year, cutting the size of GE Capital and slashing jobs at the lending unit and on GE's industrial side. GE also owns NBC Universal, the parent company of the NBC network.

GE company says it expects to have the cash available to make its dividend payments. But analysts point out it plans to raise that money from its industrial businesses that could be hit hard by the global slowdown that could further spending by consumers on GE appliances and big investors on items like GE energy turbines.

The company's top credit rating will also likely face close scrutiny from ratings agencies like Standard & Poor's, which warned last month that there is a one-in-three chance GE will lose 'AAA' rating in the next two years, largely due to GE Capital's woes.

For all of 2008, GE earned $17.3 billion, or $1.72 share, down 22% from a year earlier. Company revenue grew 6% during 2008 to $182 billion.

Over the past year, GE shares have tumbled about 60%, erasing some $200 billion in market capital, and sharply outpacing the 32% fall of the Dow Jones industrial average.