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GE Says World Won't End but Volatility Will Persist


NEW YORK (TheStreet) -- The world isn't ending, and the developing world will continue to be the global economic engine, though a more sober economic and markets analysis is needed headed into 2012. That was the message from General Electric (GE) officials on the company's third-quarter earnings call.

GE officials said during the call Friday morning the company expects a slow-growth developed world environment, and that Europe could be flat next year, or maybe even in a recession. However, GE doesn't expect a huge decline in Europe or in the U.S.

In the emerging markets, where growth is outpacing growth in developed markets for the industrial conglomerate, GE said it expects continued good order momentum, with it very broad-based across all growth regions, though it will "continue with some volatility."

GE CEO Jeff Immelt

"Brazil doesn't go straight up forever and China will have some slowing, maybe from 9% to 8%. We are in heavy infrastructure and that's where capital expenditures are being made in the emerging growth regions," GE CEO Jeff Immelt said on the earnings call.

"Lots of commentary from CEOs has been in the vain that things are better than the headlines indicate and we might be making it, another recession, a self-fulfilling prophecy," Morningstar analyst Daniel Holland said.

GE met Wall Street earnings expectations in the third quarter, but its bottom line was helped by tax gains, and its core industrial markets, especially energy, showed pricing and margin weakness.

GE also made progress in the third quarter with its ongoing effort to clean up the balance sheet of its financial arm, GE Capital.

Morningstar's Holland had noted ahead of the GE earnings that in recent quarters GE had been keying investors on a pickup in quoting activity in key businesses like gas turbines, and in general, analysts have been looking for signs that some of the "late-stage" economic recovery GE markets will show strength. While GE did not give any indication that customers are putting the brakes on new spending and potentially delaying orders, the margin and pricing weakness in the third quarter raises questions about GE's growth outlook, as well as pricing concessions to get orders on the books.

GE noted in its earnings that its order backlog hit a record $191 billion in the third quarter, but given the margin and pricing weakness, especially in energy, Wall Street was still trying to glean if the backlog is as strong as GE thinks.

"That's a read on the macro environment," Morningstar's Holland said.

However, the GE-specific reasons for its margin disappointments in the third quarter, as opposed to the more general macro read, could be seen in the divergence between GE shares and the markets on Friday. All the major indices were up by near 2%, while GE shares -- already trading closer to a 52-week low than high headed into earnings -- were down by 2% to $16.36. GE hit a 52-week low on Oct. 2 at $14.02.

GE was right in one respect with its global macro analysis: the markets remained volatile on Friday, with the 2% rally wiping out any memory of a sizable slide from Wednesday afternoon, and putting the Dow back into the green for the week. It was GE shares alone, notably, on the losing side of market volatility on Friday. In fact, as the Dow stood out for its strength on Friday, GE stood out as the only member of the venerable index that was in the red.

-- Written by Eric Rosenbaum in New York.

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