Updated from 10:09 a.m. EDT
shareholders got a nasty shock after the firm reported disappointing first-quarter earnings Friday.
Efforts by management to pin the blame for the shortfall on credit market snafus in late March went largely ignored. Steamed-up investors and traders quickly sold off shares of the multinational conglomerate. The stock closed down $4.75, or 12.9% to $32.
The firm said earnings from continuing operations were $4.4 billion, 44 cents per share, an 8% drop from first quarter 2007.
Lights Flicker at GE After Earnings Miss
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Chairman and CEO Jeffrey Immelt said the company would have earned 5 cents more had it not been for "extraordinary disruptions" in the capital markets which prevented the sale of certain assets and slammed income in the financial services division.
But even after adjusting the income for the unusual event, the firm's earnings would still have been well short of consensus analyst expectations of 51 cents per share.
"I think what is surprising is that this company didn't preannounce," says Georges Yared, chief investment strategist at Yared Investment Research in Minneapolis. "I'm hearing investors are ticked."
The company could have softened the blow if it had warned earlier in April that the quarter had been impacted by less-than-stellar performance in the financial services division, explains Yared.
Instead, investors are now left reeling after what some see as being blindsided by cavalier management.
He says the stock could see a "buyers strike," or a period when investors studiously avoid the stock, which holds the rare privilege of being one of the 30 stocks in the
Dow Jones Industrial Average
The news unsettled financial markets in early trading Friday, given GE's large size and its management's historical reputation as a highly savvy group of leaders. The
Dow Jones Industrial Average
both closed down 2%. The
was off 2.6%.
"We are going to see the market react quite badly to this news," says Brian Gendreau, an investment strategist at ING Investment Management in New York. "The market is still struggling with how deep is the credit crisis and is it going to spread to the rest of the economy."
Revenue from continuing operations at GE was $42.2 billion, up 8% from the year ago. The company reported first-quarter net earnings of $4.3 billion, or 43 cents per share, a 2% drop from first quarter 2007.
In a prepared statement, Immelt said that commercial finance and GE Money remain in good shape and earned $2.2 billion. "Our balance sheet is strong, portfolio quality is stable and we are originating business at high margins," he said.
GE also said its NBC Universal division grew profits by 3%. The firm has been under
to sell the unit.
The company reduced its full-year EPS guidance to $2.20 to 2.30 from $2.43, and said it expects industrial earnings to grow 10% to 15% and financial services earnings to decline 5% to 10%. Second-quarter 2008 guidance was put to 53 cents to 55 cents.
contributor Doug Kass says that in light of the miss, he will watch for collateral weakness in diversified industrials like