GE Meets Expectations But Sees Trouble Ahead
General Electric on Friday posted a second quarter profit that met Wall Street forecasts but said it expects its third-quarter profits to be flat or down at its finance arms.
GE's earnings were helped by better-than-expected results at the company's finance operations, which sent shares higher in early trading.
But it said commercial finance profit would fall 10 to 15 percent, with GE Money consumer finance flat to down 5 percent. It also forecast a 20 to 30 percent decline in profit at its industrial division.
At its infrastructure unit, its largest business, it sees profit up around 20 percent, with profit seen flat to up 5 percent at both health care and NBC Universal media.
The results come three months after GE stunned Wall Street with an unexpected drop in quarterly profit, saying the global credit crunch and near collapse of Bear Stearns had taken a heavy toll on its finance arms, which make up about half its business.
"There was a lot of concern as to the credit crisis that was going on and how it was going to effect GE Money," said Perry Adams, vice president and senior portfolio manager at Huntington Private Financial Group, in Traverse City, Michigan. "They were down 9 percent, but consensus had them down 15 to 20 percent."
The No. 2 US company by market capitalization, and the parent of CNBC and CNBC.com, said net income came to $5.07 billion, or 51 cents per share, down from $5.38 billion, or 52 cents a share, a year earlier.
Earnings from continuing operations were flat at 54 cents per diluted share, meeting the average Wall Street estimate as compiled by Reuters Estimates.
Revenue came to $46.89 billion, up 11 percent.
The strongest growth, as expected, came at GE's infrastructure unit, where earnings were up 24 percent. Commercial finance profit rose 7 percent. Profit rose 8 percent at its health care arm and 1 percent at NBC Universal, and down 32 percent at its industrial segment.
"I would characterize it as a solid quarter," said Stephen Hoedt, an analyst at National City, in an interview on CNBC.
"Definitely there continue to be puts and takes especially on the real-estate side of the business, which I think analysts and investors should continue to be concerned about because of sustainability factors, but the underlying core businesses of the company, especially on the infrastructure side, continue to do pretty well, and given the way the global economy has been giving investors fits recently that is one of keys to focus on coming out of the quarter."
U.S. Economy 'Challenged'
The Fairfield, Conn., company affirmed its full-year profit forecast of flat to up 5 percent, which would bring earnings per share to $2.20 to $2.30. Analysts, on average, look for $2.21.
"Many markets and industries remain healthy, while the U.S. economy is challenged," Chairman and Chief Executive Jeff Immelt said in a statement. "Opportunities in emerging markets, infrastructure, commodities and global health care are creating demand for our businesses, while we fight through the difficulties of a burdened U.S. consumer, a tough housing market, inflation and volatile capital markets."
The size and breadth of GE's operations -- which range from leasing aircraft to manufacturing light bulbs to running NBC Universal media -- make it a bellwether of the U.S. economy.
"These are very good numbers for General Electric, and a great sigh of relief should be heard around the world markets momentarily," Michael Farr, president of Farr, Miller & Washington told "Power Lunch Europe."
However, some investors showed tepid enthusiasm, noting GE drastically lowered expectations three months ago.
"They are barely beating last year's earnings in what is still a strong up cycle for much of their core businesses," said Brian Langenberg, principal at money managers Langenberg & Co in New York. While he was pleased with the second quarter results, "it doesn't mean that all of a sudden everything is wonderful," he added.
Buyer for Japanese Unit
In the face of soft results, GE accelerated the pace of reworking its portfolio. The company disclosed on Friday a $5.4 billion sale of its Japanese consumer finance operation to Shinsei Bank.
GE shares rose more than 1 percent in early trading. As of Thursday's close, GE shares were down about 25 percent since the first-quarter results were announced, a far steeper drop than the 11 percent decline of the blue-chip Dow Jones industrial average.