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GE Stuns Investors With Profit Miss, Cut in Earnings Forecast

By Rachel Layne

April 12 (Bloomberg) -- General Electric Co. stunned investors after Chief Executive Officer Jeffrey Immelt unexpectedly cut the annual profit forecast yesterday and quarterly earnings fell for the first time in five years.

GE's market value plunged by $47 billion yesterday after Immelt said 2008 earnings will fall short of his $2.42 per-share forecast and first-quarter profit dropped at four of the six biggest units. [color="Red"]The 13 percent stock decline was the largest for GE since the stock market crash of 1987.

Immelt, who had repeated the 2008 forecast on March 13 and called it ``in the bag'' in December, blamed the lower earnings on the collapse in credit markets. Investors grilled Immelt about GE's ability to shield itself from further fallout, and analysts at Goldman Sachs Group Inc., Credit Suisse Group, Deutsche Bank AG and Citigroup Inc. cut their ratings on the shares.

The possibility of such a surprise has been ``the haunt that has plagued the stock during the past couple of years,'' Peter Sorrentino, a senior portfolio manager at Huntington Asset Management in Cincinnati, told Bloomberg Television. ``It's certainly going to haunt them going forward. They're not going to get a break on this anymore.''

Huntington manages $16.7 billion in assets, and owns 6.7 million GE shares.

Earnings Results

Fairfield, Connecticut-based GE's profit from continuing operations dropped 12 percent to $4.36 billion, or 44 cents a share, from $4.93 billion, or 48 cents, a year earlier. The average of 15 analyst estimates in a Bloomberg poll was 51 cents.

Revenue rose 8 percent to $42.2 billion, missing GE's forecast of about $44 billion. Net income, which includes discontinued operations, declined 5.8 percent to $4.3 billion, or 43 cents a share.

GE dropped $4.70 to $32.05 yesterday in New York Stock Exchange composite trading, the biggest percentage decline since October 1987. GE has fallen 14 percent for the year, more than the 9.2 percent decline in the Standard & Poor's 500 Stock Index.

Immelt blamed the earnings decline on a seize-up in capital markets that forced the company to write down the value of loans and Chinese securities it held. The turmoil also thwarted some asset sales in the quarter's final two weeks.

[color="Red"]The situation worsened after the Federal Reserve announced a rescue of Bear Stearns Cos. on March 14, the day after Immelt confirmed his annual earnings forecast on a Webcast with investors. [color="Red"]The Fed's action created ``a different world'' in financial markets, Immelt said. GE is trying to sell its U.S. credit card and Japanese consumer finance divisions.

``GE will have to reestablish investor credibility and earnings consistency before valuation can move higher,'' Citigroup's Jeffrey Sprague wrote in a note to investors.

Analysts at Goldman and Credit Suisse cut GE's rating to ``neutral,'' and Deutsche Bank also lowered its rating to ``hold.'' Thirteen analysts recommend buying GE, and six suggest holding it, according to Bloomberg data. None recommend selling.

``We hate disappointing investors,'' Immelt said on the GE- owned CNBC television network. ``It's not part of the company. It's not part of the culture. We take accountability for that.''