GE profit drops 46 pct as finance unit struggles

[January 24, 2009]  WASHINGTON (AP) -- In a discouraging report for the American economy, General Electric Co. posted a 46 percent drop in fourth-quarter earnings on Friday and warned of a tough environment this year as it struggles with its ailing finance business.

The results cap a difficult 2008 for one of the world's largest industrial companies and point to risks ahead.

GE's businesses touch on most sectors of an economy mired in a recession, from medical equipment and real estate to TV stations. And its longtime profit engine, GE Capital, has seen profits sapped as businesses and consumers limit borrowing or default.

"The environment in total is very tough," GE's Chief Executive Jeff Immelt told analysts on an investor conference call.

Shares of the Fairfield, Conn.-based company fell $1.45, or 10.8 percent to $12.03 Friday, after hitting a 52-week low of $11.87 earlier in the session.

After paying preferred dividends, GE's earnings totaled $3.65 billion, or 35 cents per share for the three months ended Dec. 31, down from $6.7 billion, or 66 cents per share, a year earlier. Those results included $1.5 billion in charges from a restructuring of GE Capital and increased reserves. But they also included a significant tax boost of $1.38 billion.

That benefit, which some analysts estimate added 17 cents per share to GE's quarterly earnings, stemmed mostly from higher losses and the restructuring. But this year's overall tax benefit likely won't rise to the same levels, the company said.

Quarterly revenue slipped 5 percent to $46.2 billion.

GE, which makes everything from turbines to light bulbs, reaffirmed plans to pay its $1.24 dividend and defend its top "AAA" rated credit. But investors worried about how the company would maintain both and keep up growth in its industrial businesses.

"People are going back to scratching their heads and thinking, 'How are these guys going to do it?'" said Peter Sorrentino, senior portfolio manager of Huntington Asset Advisors, which holds 4.8 million GE shares in its funds.

Still, GE expects to have cash available to make its dividend payments.

"We are not straining to pay it," Immelt said. "We've got lots of cash and free cash flow."

GE said it sees earnings growth of zero to 5 percent this year from its industrial and media divisions, down from 10 percent in 2008. Industrial orders fell 6 percent in the fourth quarter, spread across many of GE's businesses, even those that reported strong quarterly results.

Fourth-quarter results highlighted that the slowdown was already under way for some of its businesses. Transportation profits dropped 16 percent and health care earnings fell 9 percent. Real estate swung to a loss of $60 million from a profit of $605 million.

The aviation segment, however, notched a 21-percent gain in profit while energy rose 15 percent.

NBC Universal, which includes Universal Studios, the NBC network and the Universal theme park chain, reported a 6 percent drop in profits to $865 million, driven down in part by less advertising at NBC's local stations.

Quarterly profits at GE Capital - its largest segment - fell to $1.03 billion, less than a third of last year's total. The unit, which makes loans to consumers and businesses, also fell short of its $9 billion profit goal for the year, topping out at $8.6 billion. In addition, provisions for loan losses will be $1 billion greater than originally forecast.

GE last year cut the size of GE Capital and slashed jobs at the lending unit and on GE's industrial side. Those moves helped contribute to GE's big quarterly tax benefit, which included $900 million for higher losses at GE Capital, $800 million for restructuring GE Capital, and $400 million related to investments.

Analyst Nick Heymann of Sterne Agee said that a 17 cent per share tax gain, which is unlikely to be repeated, raises doubt that GE's earnings will be high enough for the company to go ahead with plans to pay the $1.24 per share dividend.

The fourth quarter "continues to point to non-sustainability" of the dividend, he wrote in an investor note.

The company's top credit rating will also likely face close scrutiny from ratings agencies like Standard & Poor's, which warned last month that there is a one-in-three chance GE will lose 'AAA' rating in the next two years, largely due to GE Capital's woes.

For all of 2008, GE earned $17.3 billion, or $1.72 per share, down 22 percent from a year earlier. Company revenues grew 6 percent during 2008 to $183 billion.

[Associated Press; By STEPHEN MANNING]

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.