General Electric 2nd-Quarter Net Down 18% on Lower Lending Revenue

General Electric 2nd-Quarter Net Down 18% on Lower Lending Revenue

July 20, 2012
--GE says negative foreign-exchange rates crimped revenue

--Stands by forecast for double-digit full-year earnings growth

--Calls global economy volatile

(Updates throughout with additional detail and stock activity.)


By Bob Sechler

General Electric Co.'s (GE) second-quarter earnings fell 18% but edged Wall Street forecasts on an operating basis, buoyed by profit growth at its big energy infrastructure division and its GE Capital finance unit.

Overall margins at the Fairfield, Conn., conglomerate's industrial units continued to slip, however, and
orders for new infrastructure equipment and services were down slightly. GE said negative foreign-exchange rates also hurt revenue growth, which came in at only 2.5%.

GE shares were off 0.25% in recent premarket trading, at $19.80.

Chief Executive Jeff Immelt called the global economy "volatile" in a prepared statement but was upbeat overall and reiterated his forecast for double-digit earnings growth in 2012.

GE said new infrastructure orders were down about 1% in the quarter at $23.1 billion, although it attributed the trend to a big drop in demand for wind turbines. It said orders still were up 8% on a year-to-date basis.

Prior to GE's report, analysts at J.P. Morgan had warned the company would see orders fall for its wind business as U.S. customers have already booked most of their turbine orders. It also noted that a big air show wouldn't occur until the third quarter, hurting results from the conglomerate's aviation business.

The company said revenue from its industrial businesses, which include energy infrastructure and aviation, rose to $25.04 billion in the second quarter, an 8.8% jump. Profit from the businesses was up 6.8% to $3.74 billion, fueled by 13% profit growth at the energy division.

GE announced later Friday that it is reorganizing its energy unit into three standalone businesses, effective in the fourth quarter. John Krenicki, a GE vice chairman and chief executive of the energy infrastructure division, plans to leave at the end of the year after 29 years with GE.

Overall margins at the industrial units slipped to 14.9%, from 15.2% in the year-ago period. GE has been targeting margin growth at the industrial units as it counts on them to drive results amid the ongoing downsizing of GE Capital, although the company has said most of the increase will come in the second half and in 2013.

GE has worked since the financial crisis to slim down GE Capital by selling assets and allowing its loan portfolio to shrink. In June, The Wall Street Journal reported that top executives are looking at going further, including possibly selling businesses in GE Capital's consumer-finance portfolio, such as private-label credit cards or showroom financing for products like snowblowers or lawn mowers.

Revenue from GE Capital fell 7.9% to $11.46 billion, but profit rose 31% to $2.12 billion.

GE reported overall second-quarter profit of $3.11 billion, compared with a year-earlier profit of $3.76 billion. Per-share earnings, reflecting the payment of preferred dividends in the prior-year period, declined to 29 cents from 35 cents a year earlier.

The company's operating earnings, which exclude pension costs, rose to 38 cents from 34 cents a year ago, slightly topping the 37-cent per-share consensus estimate of analysts polled by Thomson Reuters.

Revenue climbed to $36.5 billion. Analysts expected $36.8 billion in revenue.

GE also boosted reserves in the quarter for potential liabilities stemming from its former subprime-mortgage operation, WMC Mortgage, and its former Japanese consumer finance unit, GE Money Japan, which it sold in 2007 and 2008, respectively. GE said it added $351 million to reserves for WMC Mortgage and $310 million for reserves for GE Money Japan.