Sun, Jul 22, 2012 - Page 13 News List

GE Q2 profit tops expectations in challenging times

Reuters

General Electric Co (GE) on Friday reported a 2.5 percent rise in profit from continuing operations, topping Wall Street expectations, as solid demand in the US and emerging markets offset weakness in Europe.

The largest US conglomerate by revenue stuck with its forecast for the rest of this year, saying it would increase earnings at a double-digit percentage rate by pushing profit margins higher.

In a move intended in part to cut costs, GE said it would break up its big energy division into three separate units.

“The environment continues to be challenging,” chief executive Jeff Immelt said on a conference call with investors.

He said the US economy was stable, adding that “Europe remains very tough, but within our expectations.”

GE’s industrial sales in Europe were down 7 percent in the quarter, but up 6 percent in the US and 24 percent higher in China, said chief financial officer Keith Sherin. Overall revenue rose 2.5 percent, but missed expectations.

The company, the world’s biggest maker of electric turbines and jet engines, posted profit of US$0.38 per share, excluding one-time items, a penny above analysts’ average estimate, according to Thomson Reuters I/B/E/S. It excludes US$0.05 cents in charges from its former US subprime mortgage unit and Japanese consumer finance business.

GE’s report followed two days of stronger-than-expected earnings from other industrial companies, including Textron Inc and Honeywell International Inc, indicating multinational companies were finding a way to manage through a rough economy.

“GE had the perfect opportunity to bring expectations down and blame it on Europe and that would have been the tell-tale move that would have said:’OK, GE is beginning to suffer here in this environment’ and they didn’t do that,” said Jack De Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire.

The company has been cutting costs, particularly in Europe, by combining business units and reducing the number of executives and support staff needed.

“GE Capital led the way on this,” by combining its consumer and commercial finance units in Europe, Sherin said. “We have consolidated different sub-business operations under one set of senior leaders.”

The company also said it would split up its US$50 billion Energy Infrastructure unit, created in a 2008 restructuring, into three separate divisions, reporting directly to Immelt.

The restructuring, once complete, would cut annual expenses by between US$200 million and US$300 million a year, executives said.

Sales rose 2.5 percent to US$36.5 billion from US$35.62 billion — shy of Wall Street’s expectation of US$36.8 billion. The company noted that the strengthening US dollar reduced revenue by US$900 million in the quarter.

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