General Electric profit falls 32 pct as revenue slips, but says economic signs are encouraging

GE 1Q earnings fall 32 percent as revenue slips

General Electric Co. on Friday reported a 32 percent drop in its first-quarter earnings, but the industrial and financial bellwether said it saw signs of improvement in its own results and the broader economy.

The results from GE, one of the world’s largest companies and an operator in most major segments of the economy, signal that some sectors may be recovering from the deep recession.

“We saw encouraging economic signs,” said CEO Jeffrey Immelt, pointing to increased airline traffic and freight loads, less bad debt and more local advertising growth. He noted that GE’s backlog of equipment and services held steady from the prior quarter at $174 billion.

But despite the optimistic tone, GE’s earnings also underscored the major challenges the company faces as it tries to return to profit growth after several punishing quarters.

Its GE Capital lending unit posted a profit but losses remained high in areas like commercial real estate. GE’s industrial units, which the company is relying on to lead it out of the recession, also posted lower sales. And while its earnings beat Wall Street estimates, revenue was lower than analysts expected.

Company shares fell 53 cents, or 2.7 percent, to close at $18.97 amid a broader market decline.

Eric Boyce, a portfolio manager at Hester Capital Management, said GE’s results suggest that the domestic economy “is out of crisis mode, but that we are in a muddled, protracted recovery.”

GE Capital has been the biggest headache for the conglomerate over the past two years, as losses on its loans soared on troubles in the home mortgage, consumer credit card borrowing and commercial real estate markets. The division’s profits fell 41 percent during the quarter, though much of that was due to downsizing and a substantially lower tax credit. The loss in commercial real estate more than doubled to $403 million.

Still, GE said losses were moderating at GE Capital, with Immelt predicting that the division has “turned the corner.” GE Capital posted a $607 million profit even with the lower tax credits — $357 million compared to $1.15 billion a year ago. It also saw stabilization as losses and delinquencies declined.

Overall, GE said it earned $1.87 billion, or 17 cents per share, after deducting preferred dividends in the January-March period, down from $2.75 billion, or 26 cents per share, a year ago. Revenue fell 5 percent to $36.6 billion from $38.4 billion a year ago.

Excluding $390 million in losses from one-time items, GE’s earnings from continuing operations totaled $2.4 billion, or 21 cents a share. Analysts polled by Thomson Reuters expected profit of 16 cents a share on higher revenue of $37.1 billion.

GE is considered an indicator of the well-being of the broader economy. It makes industrial products ranging from light bulbs to wind turbines, and is a big lender to businesses and consumers.

As the economy sank in late 2008, so did GE. The seizure of credit markets made it hard for GE to raise money and the stress on consumers and companies led to big losses on GE loans and lower orders for its industrial businesses. GE dropped its dividend payment by 68 percent to save cash, lost its top credit rating and saw its stock price tank.

GE said Friday that the SEC has requested information on how much the company disclosed to investors about its financial situation during the crisis.

The probe was prompted by a recent book by former Treasury Secretary Henry Paulson, who wrote that Immelt called him in September 2008 to report GE was having difficulty selling commercial paper. But shortly afterward, GE reassured investors that its ability to raise debt was sound.

GE spokeswoman Anne Eisele said Friday that the company is cooperating with the SEC and that it is “entirely confident our disclosures were accurate.”

GE has billed 2010 as a year of transition to renewed earnings and dividend growth next year.

But the first-quarter results suggest that recovery may take a while to gather steam. Industrial sales were down 2 percent in the quarter on lower sales of jet engines and train locomotives, outweighing better results for products like medical imaging machines and power plant turbines.

The sharp uptick in commercial real estate losses shows that area will remain a drag on GE’s efforts to rebound. And its NBC Universal entertainment division also posted a big drop in profits, down 49 percent to $199 million as it booked losses on Winter Olympics coverage.

GE had expected to lose $250 million NBC’s coverage of the Winter Olympics. But ratings were up 14 percent, helping push down the actual loss to $223 million. GE plans to sell a majority stake in NBC to cable operator Comcast, a deal that is expected to close later this year. Immelt said GE may evaluate additional restructuring efforts to boost earnings going forward.