The Wall Street Journal-20080119-GE-s Strength Abroad Helps It Weather Weakness in U-S-
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GE's Strength Abroad Helps It Weather Weakness in U.S.
General Electric Co. provided a measure of reassurance that growth overseas will continue to buffer some U.S. companies amid slowing spending at home.
The Fairfield, Conn., conglomerate said strong global demand for power turbines and jet engines offset weakness among U.S. consumers, helping the company post a 4% increase in fourth-quarter profit.
"There's no sign that this global infrastructure boom is slowing at all," Chairman Jeffrey Immelt told investors. GE said sales from outside the U.S. accounted for more than half of its revenue for the first time in 2007; annual revenue rose 14% to $172.74 billion.
Mr. Immelt reaffirmed GE's forecast for 2008 of 10% growth in earnings per share. GE shares rose $1.10, or 3.3%, to $34.31 in 4 p.m. New York Stock Exchange composite trading.
Excluding discontinued operations, such as its soon-to-be-shuttered subprime-lending unit, GE reported earnings from continuing operations of 68 cents a share, up 17% from 58 cents in the year-ago period.
In a sign of continued issues at the consumer-finance unit, GE increased its reserves by $333 million, primarily to cover losses on its U.S. credit-card business. GE has said it is seeking to sell that unit or find a partner. GE offset the loss provision partly by selling a portion of its stake in Turkey's Garanti Bank.
For the fourth time in the past year, GE corrected past financial statements to reflect incorrect accounting. This time, it was on service contracts with aviation customers. The adjustments, mostly considered too small to require formal restatements, have trickled out during a three-year review initiated by a 2005 Securities and Exchange Commission investigation. GE Chief Financial Officer Keith Sherin said the latest changes would decrease 2002 earnings by $570 million, or about five cents a share, but increase earnings in subsequent years by the same amount.
Analysts said GE's profits benefited from a lower-than-expected tax rate of 16% for 2007; GE had projected 17%. But Goldman Sachs Group analyst Deane Dray said GE's growth was "reassuring" and overshadowed concerns about the tax rate.
The fourth quarter's fastest-growing businesses were aviation, energy and oil and gas. GE's energy business posted operating profit of $1.4 billion, a 38% increase. It shipped 56 gas turbines in the quarter, compared with 40 a year earlier. Operating profit rose 27% to $959 million at the aircraft-engine unit, and it rose 50% to $332 million at the oil-and-gas unit.
Operating income at the consumer-finance unit increased 7% to $957 million, despite the additional reserves. Mr. Sherin said the unit would set aside another $500 million to $600 million in loss provisions for this year, which he described as a "big increase."
GE has roughly $22 billion in off-balance-sheet assets, primarily credit-card receivables that it has sold to investors. Mr. Sherin said delinquencies on those cards are rising.
Still, Mr. Sherin said investors should take confidence from the fact that GE is not taking multibillion-dollar write-offs like other big financial institutions. "It differentiates us," he said.
Mr. Immelt said GE has an opportunity to buy distressed financial assets, estimated at around $100 billion in the U.S. He said GE would be "prudent but aggressive" in looking at the assets for sale.
GE said the writer's strike had no impact on the NBC Universal unit during the fourth quarter and will have minimal impact in the first period.
