GE Earnings Up 25 Pct; Growth Seen in '03
" GE met Wall Street's third-quarter expectations, but relied on the sale of its Internet commerce unit to meet targets."
Reuters Business Report
GE Earnings Up 25 Pct; Growth Seen in '03
Friday October 11, 4:58 pm ET
By Tim McLaughlin
biz.yahoo.com
BOSTON (Reuters) - General Electric Co. (NYSE:GE - News) on Friday said
third-quarter quarter earnings rose 25 percent as NBC television and the sale of its
Internet commerce unit helped offset sluggish plastics demand and weakness in its key
aerospace and power markets.
GE executives said during a
conference call they expect solid
growth next year, but plan
aggressive cost cutting throughout
the company. They said GE power
systems, whose business has slowed
after a long boom cycle, faces
"dramatic restructuring."
Chairman Jeff Immelt reluctantly
provided the first glimpse of GE's
2003 outlook. And Wall Street was
glad to have it, as his remarks
boosted GE shares 7 percent,
helping propel a broad-based stock
rally.
"I hate to do this before we've
completed our business plan, but in this period of volatility I just feel it's important to
give you our current thinking," Immelt said.
"Even in a very tough environment, our short-cycle businesses will experience good
growth in (2003)," he added.
Immelt outlined five factors, which included cost cuts, that he said would create the
foundation for "solid growth" in 2003. A more detailed forecast is expected in
December.
GE met Wall Street's third-quarter expectations, but relied on the sale of its Internet
commerce unit to meet targets. After GE previewed results last month, some analysts
saw cracks in GE's armor, spurring them to cut 2003 targets.
"Certainly, versus the rest of the world it's a darn good quarter," said Morgan Stanley
analyst Scott Davis. "Unfortunately, it's really not right now that we're worried about. It's
2003."
The maker of light bulbs, jet engines and appliances said it earned $4.1 billion, or 41
cents a share, compared with $3.28 billion, or 33 cents, a year earlier.
Analysts were looking for GE to earn 39 cents to 41 cents a share, with consensus at
the top end of the range, according to Thomson First Call.
The company backed its earnings target for the year of $1.65 per share, as Immelt
called the economy "tougher than anyone planned." That's up 20 percent from the
$1.37 per share it earned in 2001.
Brian Bruce, director of global investment at PanAgora Asset Management, which holds
about 5.8 million GE shares, said it will be difficult for the company to grow at the same
rate as past years, in part, because of its sheer size.
"With GE you are owning huge majorities of market share in the businesses you are in,"
Bruce said. "At some point, the rate of growth declines even if absolute growth is
constant."
GE's third-quarter revenue rose 11 percent, to $32.6 billion, up from $29.5 billion in the
year-earlier quarter.
GOOD QUARTER, BAD QUARTER
GE recorded a one-time gain of $317 million from the sale of its GXS Internet
commerce business.
That helped offset losses of $156 million at Employers Reinsurance Corp. (ERC),
whose underwriting was hurt by floods in Europe and a large factory fire. GE Equity
also took a $167 million loss exiting battered technology investments.
ERC's losses this year are expected to total $450 million. GE's goal for ERC in 2003 is
to break even.
Top-rated television shows at NBC, which capitalized on strong ad pricing, boosted
profits at that unit by 59 percent.
But GE plastics saw growth stall in the third quarter, contributing to a 19 percent profit
decline at the unit. That performance spooked Wall Street because GE considers
plastics to be a key leading economic indicator.
Growth at GE power systems, which makes gas turbines, also stalled in the quarter.
Profit increased 16 percent, compared to 66 percent growth in the previous quarter.
As expected, profit at GE's aircraft engine unit, which will cut 1,000 jobs this year, fell
because key commercial airline customers continue struggle in the aftermath of the
Sept. 11 attacks.
Merrill Lynch analyst John Inch said the aircraft engine unit's performance was better
than expected, but GE medical's sales were off as it encountered tough markets in
Japan and Latin America.
Profit on sales of GE appliances rose 21 percent, but lighting products recorded a $22
million loss as the company combines the two to revamps its consumer products
business.
GE rival Maytag Corp. (NYSE:MYG - News), the No. 3 U.S. home appliance maker, said
on Friday it plans to close an Illinois refrigeration plant and cut about 8 percent of its
work force.
Revenue from GE financial service surged 13 percent, to $14.98 billion, while net
earnings climbed 19 percent. Assets increased 21 percent, to $473 billion as units of
commercial finance agreed to deals totaling $5.2 billion to buy assets from Deutsche
Financial Services and ABB.
But George Tall, portfolio manager of the David L. Babson Value Fund, which does not
hold GE shares, said the company's low cost of funding is coming under pressure.
"What's going on generally in the markets right now is that the ability of management
and companies to continue to (boost) the size of their balance sheet is being
restricted," he said.
GE's "debt ratings are higher than everybody else. The cost of funding, historically, has
been lower than everyone else. That's just a huge strategic advantage," Tall said.
GE shares, which have slid more than 40 percent this year, rose $1.61, or 7.12
percent, to close at $24.21 Friday on the New York Stock Exchange.
Email this story |
