GE downed by credit woes in Q1 2008; reports first decline in profits since 2003

General Electric today reported its first decline in quarterly profit since 2003,  with a 12 per cent drop in earnings. It said the first quarter 2008 earnings from continuing operations of $4.4 billion were $.44 per share, down 8 per cent from first quarter 2007, despite the first quarter revenues from continuing operations rising 8 per cent $42.2 billion to $42.2 billion.

The company said its earning were weighed down by the financial turmoil in the markets that prevented GE from selling some of its finance assets and its health-care division had also underperformed. GE put its US credit card business and Japanese consumer finance units up for sale last year. 

The company says its healthcare earnings were impacted by a ''difficult US environment} and continued regulatory shipping restrictions on the surgical supplies business.

''Demand for our global infrastructure business remained strong, but our financial services businesses were challenged by a slowing US economy and difficult capital markets,'' GE Chairman and CEO Jeff Immelt said. ''While we are disappointed with our results, the fundamentals of our businesses are strong.

''Infrastructure had a solid quarter, growing revenues 23 per cent and earnings 17 per cent,'' Immelt said. He said, oil and  gas, energy, transportation, and aviation had all generated double-digit profit growth – with no signs of slowing. ''Infrastructure orders increased 12 per cent, and we added more than $3 billion in backlog since last quarter.''

GE's total orders were $24 billion, up 8 per cent. Major equipment orders grew 11 per cent to $12 billion. Major equipment backlog was at $52 billion, an increase of 41 per cent. Services orders were up 5 per cent, and CSA backlog stood at $110 billion, an increase of 16 per cent year-over-year.

However, GE's  double-digit earnings growth for the quarter was offset by double-digit decreases at commercial finance, GE Money, healthcare, and industrial.

1Q 2008 Highlights

• Continuing earnings per share (EPS) of $.44, down 8 per cent; continuing earnings of $4.4 billion,   down 12 per cent
  
• Net EPS of $.43, down 2 per cent; net earnings of $4.3 billion, down 6 per cent
  
• Revenues of $42.2 billion, up 8 per cent; global revenue growth of 22 per cent
  
• Industrial organic revenue growth of 5 per cent; financial services organic revenue decline of 8 per cent
  
• Industrial cash flow from operating activities (CFOA) of $3.7 billion, an increase of 8 per cent
  
• Return on average total capital (ROTC) at 18.1 per cent
  
• Total orders of $24 billion, up 8 per cent; major equipment orders of $12 billion, up 11 per cent; services orders of $8.3 billion, up 5 per cent
  
• Major equipment backlog of $52 billion, up 41 per cent; customer service agreement (CSA) backlog of $110 billion, up 16 per cent
  
• Lowering EPS guidance for full year 2008 to $2.20 - 2.30, up 0-5 per cent from 2007

Immelt  said GE's focus on globalisation helped sustain the company during the US slowdown as global revenues grew 22 per cent, ''with strength in virtually every business,'' Immelt said. He added that growth in developing countries was 38 per cent, and 14 per cent in developed countries outside the US.

''Our primary shortfall was a decline in financial services earnings. 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,'' Immelt said. ''Our inability to complete these asset sales and higher mark-to-market losses and impairments impacted earnings by $.05 per share versus plan.''

''Commercial Finance and GE Money remain in good shape and still earned $2.2 billion in a tough market. Our balance sheet is strong, portfolio quality is stable and we are originating business at high margins.

''Our other industrial businesses had mixed performances. NBC Universal grew segment profits 3 per cent, for its sixth straight quarter of profit growth,'' Immelt said. ''In the Industrial segment, we had strong performance in Enterprise Solutions, with profit up 15 per cent, partially offsetting a difficult U.S. Appliance market.

''In light of what we have seen in the first quarter, we have revised our earnings outlook for the full year to protect investors by reflecting a slower economy and assuming capital markets remain challenging,'' Immelt said.

''We are lowering our full-year EPS guidance to $2.20-2.30 from continuing operations for growth of 0-5 per cent. As a part of this guidance, we expect our industrial earnings to grow 10-15 per cent and financial services earnings to decline 5-10 per cent. This range encompasses any portfolio actions we have announced. Consistent with this range, our second quarter 2008 guidance is $.53-$55 EPS.''

Immelt  said GE was making operational adjustments factoring in the current business environment for the coming period.