GE shares down sharply on 1Q earnings decline - Dow tumbles at news

General Electric delivers a shock

Shares of the conglomerate - a symbol for the nation's economy - tumble on a surprise decline in earnings and
lowered forecasts.

By David Goldman, CNNMoney.com staff writer
Last Updated: April 11, 2008: 9:55 AM EDT

GE posted a surprise earnings miss Friday, brought down by its struggling financial services division.

NEW YORK (CNNMoney.com) -- General Electric - widely viewed as a proxy for the U.S. economy - posted a surprising first-quarter earnings miss Friday, deflating investors' hopes that the conglomerate could rise above an impending slowdown.

Shares of GE - a Dow Jones industrial average component - tumbled more than 11% in early morning trading, and the results sent stock market tumbling.

GE's (GE, Fortune 500) reported net income fell 6% to $4.3 billion after reporting income of $4.6 billion in the first quarter of 2007.

Earnings from continuing operations were 44 cents per share, down from 48 cents per share a year earlier and well below the 51-cent-a-share consensus forecast of analysts polled by Thomson Financial.

Sales rose 8% to $42.2 billion, which missed analysts' forecast of $43.7 billion. A year ago, GE reported revenue of $39.2 billion.

GE has typically been a model of consistency, rarely missing - or beating - estimates. Only once since the start of 2006 has GE failed to deliver earnings that exactly met First Call's forecast, according to the earnings tracker. That was in the second quarter of 2007, when it beat the earnings per share forecast by a penny.

With businesses in a multitude of sectors, such as health care, finance, energy, consumer electronics, industry and media, many consider GE to be a barometer for the health of the U.S. economy.

Poor environment dooms earnings

But even with strong exposure in markets overseas, the multi-faceted corporation could not avoid taking a hit to its financial services division amid a U.S. credit crisis.

"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."

GE's commercial finance division posted earnings that were down 20% from year-earlier results, and GE Money came in 19% below last year. Results were mostly hampered by a struggling real estate market, as GE's home loan division posted earnings that came in 16% below last year's levels

Also dragging results down were double-digit percentage drops in the health care division and in the industrial division, which struggled on slumping consumer sales.

Though GE reaffirmed its first-quarter guidance in mid-March, it said the fallout from the Bear Stearns collapse led to a much more difficult environment in the last two weeks of the quarter.

"The last two weeks of March were a different world in terms of financial services," said Immelt on a conference call with analysts. "There was a real inability to do transactions in those weeks that we normally can get done."

Some divisions, however posted stronger results. NBC Universal posted a 3% earnings improvement over last year, despite calls from shareholders to dump the media division. And GE's infrastructure segment gained 17% more than last year on strong energy revenue and large global demand for wind turbines.

"While we are disappointed with our results, the fundamentals of our businesses are strong," Immelt said. "Nevertheless, we failed to meet our expectations.

Guidance lowered

The poor first-quarter showing prompted GE to lower its full-year earnings sguidance to $2.20 to $2.30 per share, reflecting flat to 5% growth. That's down from the original $2.42 per share forecast that GE gave before the first-quarter results were released.

The conglomerate expects its financial services earnings to decline 5% to 10% in 2008 and gave second-quarter guidance of 53 to 55 cents per share, falling short of analysts' expectations of 58 cents per share.

"We want to make sure this doesn't happen again, so we're not assuming anything will get better this year," said GE vice president of investor communications, Dan Janki. "We wanted to give a framework that reflects the reality we're dealing with and takes into a need for more flexibility in a volatile world." To top of page

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