GE Rises Most Since 1980 as Profit Meets Estimates (Update1)

By Rachel Layne

-- General Electric Co. rose 13 percent in New York trading, the most in at least 28 years, after its third-quarter profit matched analysts' estimates during the worst U.S. financial crisis since the Great Depression.

Profit from continuing operations fell 12 percent to $4.48 billion, or 45 cents a share, from $5.11 billion, or 50 cents, a year earlier. Sales rose 11 percent to $47.2 billion, the Fairfield, Connecticut-based company said today. Chief Executive Officer Jeffrey Immelt said GE will meet its 2008 forecast.

GE, a 106-year-old economic bellwether whose products range from lightbulbs to power-plant turbines, generated higher profit from its energy, technology and NBC Universal businesses. This year those earnings have been overshadowed by investor concern the global credit crunch will sap the finance units known as GE Capital. Finance profit declined 33 percent.

The quarter ``wasn't great, but more importantly, it wasn't a disaster,'' wrote Nicole Parent, an analyst at Credit Suisse in New York who has a ``neutral'' rating on the stock. Chief Financial Officer Keith Sherin's ``walkthrough of GE Capital Services' portfolio performance, liquidity position, quality and credit loss expectations was thorough.''

GE rose $2.49 to $21.50 at 4:15 p.m. in New York Stock Exchange composite trading, with most of the gain in the final hour. It has lost almost half its value in 12 months. The Dow Jones Industrial Average fell for an eighth straight day.

Immelt's Actions

Immelt, 52, moved to shore up GE's cash Oct. 1, deciding to raise $12 billion from selling common stock and $3 billion by selling preferred shares to Warren Buffett's Berkshire Hathaway Inc. Six days earlier, he had told investors no such move was needed, even as he lowered his 2008 profit target a second time.

``Clearly to everyone, the environment remains very volatile,'' Immelt told investors on a conference call today. ``The global financial system is tough. We see consumer confidence falling, unemployment up again last week, but we still see pockets of strength in infrastructure and media.''

The company was predicted to earn 45 cents in the quarter, the average estimate of 14 analysts in a Bloomberg poll, within Immelt's predicted range of 43 cents to 48 cents.

Including discontinued operations such as a Japanese consumer finance unit, net income fell 22 percent to $4.31 billion, or 43 cents a share, from $5.56 billion, or 54 cents.

Financial Crisis

The world's financial markets are in their deepest crisis since the 1930s, triggered by a drop in U.S. housing values that raised mortgage defaults and caused credit markets to seize. The Dow Jones Industrial Average, of which GE is the only original member, plunged 21 percent this month through yesterday, even after Congress passed a $700 billion economic rescue plan.

GE last year made more than half its profit from GE Capital.

Profit declined by a third to $2 billion at GE Capital in the quarter, hurt by higher loss provisions of $500 million. Income dropped 62 percent for the real estate business and 16 percent at GE Money, the consumer-finance unit. Immelt today repeated a prediction that the finance businesses would post a profit of $9 billion for all of 2008.

Adjusted for the recent stock sales, Immelt repeated the forecast for 2008. The company will earn $1.92 to $2.07 a share, or about 3 cents less than its unadjusted forecast.

``I think investors have to feel really great about those lines of defense,'' Immelt said. ``We've taken some big issues off the table.''

Commercial Paper

GE Capital has been able to issue commercial paper without interruption, CFO Sherin said on the conference call. He said GE is working with the Federal Reserve on the mechanics of the central bank's decision this week to create a special fund to buy paper from companies like GE that have A1/P1 ratings. GE would be eligible for as much as $60 billion at GE Capital and $10 billion for the parent, he said.

GE is funding itself ``without any issues'' and has no current plans to use the new Fed program, Sherin said. If conditions became serious enough, and GE needed extra liquidity, it would go to the new Fed program before touching its bank lines, Sherin said, adding that neither scenario is likely. The company has seen improvements in the commercial-paper market since the Fed announcement, Sherin said.

GE Capital should have a commercial-paper balance of about $75 billion in 2009, less than the $80 billion forecast for the fourth quarter, Sherin said. Access to about $20 billion in capital from its finance businesses brings its net balance below its $62 billion in bank lines, he said.

Industrial Units

Profit declined 82 percent at GE Consumer & Industrial, the units that make lighting, large appliances and electrical switches. GE plans to spin off the business in 2009's first half.

Earnings rose 31 percent at Energy Infrastructure as sales of power-plant equipment climbed; 10 percent at NBC Universal, whose sales benefited from the Summer Olympics in Beijing; and 2 percent at Technology Infrastructure, which includes jet-engine sales. That final sector was hurt by a decline at the health-care unit, mostly because of previously announced changes to accounting and reimbursement rules.

``Infrastructure looks great and service revenues were up double-digit,'' said William Batcheller, director of investment management in Youngstown, Ohio, at Butler Wick & Co., which has about $700 million under management including GE shares.

During the quarter GE Aviation won $4 billion in orders at Farnborough International Air Show in the U.K., and GE formed an $8 billion joint venture with Dubai's Mubadala Development Co. to profit from commercial development in the Middle East and Africa.

Cash Generation

Cash generated from operating activities in the first nine months of the year was $13.6 billion, down 18 percent mostly because a $2.7 billion special dividend wasn't repeated at GE Capital. Industrial cash flow from operations was $11.3 billion, up 5 percent, GE said.

So-called organic revenue growth, or sales from businesses owned more than a year, rose 10 percent at the non-finance units and 3 percent for the company overall. The total order backlog is at $170 billion and the equipment backlog rose 19 percent.

Investors have pushed down GE's stock and pushed up the credit default swaps used as insurance that it will repay debts. They're concerned on two fronts: whether the world's largest maker of jet engines and power-plant turbines will see demand drop as customers lose access to credit and the global economy slows, and whether GE Capital has adequate resources.