| Immelt: Blames it on plastics
Boston, July 12 (Reuters): General Electric Co. has reported a 14 per cent slide in second-quarter earnings due to weaker results from gas turbine and plastics businesses and said its most optimistic forecasts for the year were now unattainable.
The Fairfield, Connecticut, company, whose other businesses range from television broadcasting to jet-engine manufacturing, conceded it wouldn’t produce its once routine double-digit annual earnings growth for the second consecutive year under chairman Jeff Immelt’s leadership.
In a conference call with analysts, Immelt said GE was hurt by economic sluggishness linked to SARS virus, the war in Iraq and the woes at GE Plastics, which was facing higher costs for raw materials like oil and benzene.
Still, he said 2003 earnings would rise between 3 per cent and 7 per cent — less than the 3 per cent to 13 per cent once thought possible.
Investors reacted little, with GE shares edging 7 cents lower to end at $ 28.12 on the New York Stock Exchange. “There was relief that the earnings (forecast) didn’t go lower,” said analyst Jeff Graff of Victory Capital Management, which owned about 30 million GE shares at the end of the first quarter.
GE said it expects to earn $ 1.55 to $ 1.61 a share in 2003, up from $ 1.51 in 2002. Its previous forecast was $ 1.55 to $ 1.70.
The announcement did not surprise most Wall Street analysts, whose estimates ranged from $ 1.55 to $1.66 a share, for an average of $1.60, according to research firm Thomson First Call.
GE said second-quarter earnings dropped to $ 3.8 billion, or 38 cents a share, from $ 4.4 billion, or 44 cents a share, a year earlier. The company had estimated profit at 37 cents to 39 cents a share.
Revenue of $ 33.37 billion was almost unchanged from $ 33.33 billion a year earlier.
Immelt said the “ramp-down” of turbine shipments from its power systems unit pressured earnings. GE shipped 24 gas turbines in the second quarter, down from 86 a year earlier. Profit at the unit, which accounted for about 21 percent of all GE segment operations, fell sharply, as expected.
Earnings at GE Plastics plunged 71 per cent to $ 80 million. The decrease surprised some analysts, including Daniel Khoshaba of Deutsche Bank Securities, who said he had expected a 53 per cent drop.
Immelt said plastics is historically a "good earner," and he expects a return to form once raw material costs stabilise.
“We see nine of 13 businesses growing in double digits (in the second half) and more favourable comparisons in power systems and insurance,” Immelt said in a statement.
Meanwhile, at GE Capital, commercial and consumer finance profit each climbed 10 per cent in the quarter. Insurance profits soared to $ 508 million from $ 95 million.