NEW YORK (Dow Jones)General Electric Co. (GE) hit its first quarter earnings target, citing, as usual, strong productivity and power systems business.
But revenue for the period came in about flat with year ago levels and was lighter than analysts expected. GE cited revenue falloff in GE Capital Services due to "repositioning activities."
"The earnings growth is driven by strong productivity," Chief Financial Officer Keith Sherin told listeners on GE's conference call earlier Thursday.
GE reported net income of $3.52 billion, or 35 cents a share, for the first quarter before an accounting change, on revenue of $30.52 billion, compared with $3.02 billion, or 30 cents a share, on revenue of $30.49 billion a year earlier. After the accounting change, which affects how goodwill is calculated, GE earned 25 cents in the first quarter, compared with 26 cents a year ago.
Shares of GE have fallen sharply following the earnings report. Analysts and shareholders said they were disappointed in the lower than expected revenue growth and quality of earnings. Doug Kass, general partner of Seabreeze Partners, a hedge fund, pointed out that contract termination revenue contributed $326 million, or 2 cents a share, to earnings.
Some shareholders are also still worried about how GE Power Systems business can sustain growth after this year. Others, such as analyst Robert Plaza of Morningstar, said investors might be disappointed that GE officials didn't give a rosier view for the second half of the year and 2003. GE reaffirmed its guidance of earnings from $1.65 to $1.67 a share for all of this year, before adjustment for the accounting change.
Plaza also thinks GE will have to rely more on acquisitions than in the past to meet earnings and growth projections.
"There was nothing stellar about" the earnings, said Plaza. "Clearly, it demonstrates the difficulty all industrial companies are having."
Furthermore, he asked how long can GE rely on cost cutting to meet earnings goals. "Cost cutting can only get you so far," especially if the economy weakens, he said.
Also, though GE provided much more information about its operations this quarter than it ever has before, the disclosure in the earnings press release and conference call still fell short of satisfying some investors and analysts. For one thing, the company didn't leave much time on the call for investors to ask questions.
"There's still a host of earnings quality questions to be answered," said Standard & Poor's analyst Robert Friedman, a longtime bear on GE.
For example, the analyst said he wanted more details about the strong earnings growth at GE Capital and pension income accounting.
"They didn't even scratch the surface," he said.
GE shares were recently off $2.85, or 8%, to $34.35 on volume of 38 million, compared with average daily volume of about 24 million shares.
By Christopher C. Williams Of DOW JONES NEWSWIRES
(MORE) DOW JONES NEWS 041102
12:52 PM |
