GE 3Q results cheer markets despite meltdown
11 Oct 2008
After a string of bad news on the plummeting financial markets and collapsing banks worldwide, the least bit of good news is cause for celebration. The American stock markets expressed just that yesterday as shares of General Electric Co. (GE) rose 13 per cent in New York trading, the most in at least 28 years, after its third-quarter profit matched analysts' estimates.
GE rose $2.49 to $21.50 at 4:15 pm local time in New York Stock Exchange composite trading, with most of the gain in the final hour. It has lost almost half its value in 12 months. The Dow Jones Industrial Average fell for an eighth consecutive day.
Even though net income declined 22 per cent to $4.3 billion, or 43 cents a share, compared with $5.6 billion, or 54 cents per share, in the same quarter a year earlier, the mere fact that the century-old conglomerate was on its way to meet 2008 estimates was cause for cheer. To add to the festivities, revenue increased 11 per cent from $45.2 billion to $47.2 billion.
GE, whose products range from light bulbs to power-plant turbines, generated higher profit from its energy, technology and NBC Universal businesses. This year those earnings have been overshadowed by investor concern the global credit crunch will sap the finance units known as GE Capital, from which the company had more than half of its profit last year. Finance profit declined 33 per cent.
GE CEO Jeffrey Immelt moved to shore up GE's cash earlier this month, deciding to raise $12 billion from selling common stock and $3 billion by selling preferred shares to Warren Buffett's Berkshire Hathaway Inc. Six days earlier, he had told investors no such move was needed, even as he lowered his 2008 profit target a second time. (See: Warren Buffett invests $3 billion in GE's $15-billion capital raising)
Coming to the individual units, profit declined by a third to $2 billion at GE Capital in the quarter, hurt by higher loss provisions of $500 million. Income dropped 62 per cent for the real estate business and 16 per cent at GE Money, the consumer-finance unit.
Profit fell 82 per cent at GE Consumer & Industrial, the units that make lighting, large appliances and electrical switches. GE plans to spin off the business in 2009's first half.
Earnings rose 31 per cent at Energy Infrastructure as sales of power-plant equipment climbed; 10 per cent at NBC Universal, whose sales benefited from the Summer Olympics in Beijing; and 2 per cent at Technology Infrastructure, which includes jet-engine sales.
During the quarter GE Aviation won $4 billion in orders at Farnborough International Air Show in the UK, and GE formed an $8 billion joint venture with Dubai's Mubadala Development Co. to profit from commercial development in the Middle East and Africa. (See: Farnborough Air Show: GE Aviation, CFM International notch up business worth $3 billion / GE focuses on Middle East with $8-billion carbon-neutral city)
