GE Takes Hit from Market Turmoil

General Electric said on April 11 its profits took a hit from global credit market turmoil and downgraded its outlook for the coming months because of difficult economic conditions. The broadly diversified company, seen as a microcosm of the U.S. economy, reported a first-quarter profit of $4.3 billion, down two percent from a year ago, while earnings from continuing operations slumped eight percent.

Yet the results that came in sharply below Wall Street expectations and the weaker outlook ahead from GE sent shockwaves through global stock markets. GE shares tumbled 11% and dragged down indexes in Europe and the United States. GE's profit amounted to 43 cents per share. Andrew Busch at BMO Capital Markets said this was "a large miss" compared with analyst forecasts of 51 cents a share and that "the U.S. dollar comes under attack and U.S. equity markets tank" on the news.

"Our primary shortfall was a decline in financial services earnings," said GE chairman and chief executive Jeff Immelt. "We knew the first quarter was going to be challenging, but the extraordinary disruption in the capital markets in March affected our ability to complete asset sales and resulted in higher mark-to-market losses and impairments."

Immelt said that their "global infrastructure had a solid quarter, growing revenues 23% and earnings 17%. Oil and gas, energy, transportation, and aviation all generated double-digit profit growth, with no signs of slowing."

"GE's earnings announcement this morning was a serious negative surprise," said David Kotok, chief investment officer at Cumberland Advisors. "The company is a reference for the entire global economy." Kotok said the news confirms that the economy is in dire condition. "In our view the GE report is another confirmation that the U.S. economy is weak as we know and technically may qualify for a 'recession. It doesn't make a difference what academics call a recession when they finally get around to determining it. Right now the U.S. economy is at a dead stop. GE has just confirmed it in the details of their earnings announcement."