posted a nearly 10% jump in second-quarter earnings Friday, meeting Wall Street's forecast and sparking a rally in its shares as global infrastructure demand continues to boost the industrial giant's performance.
In a nod to investors, who have become increasingly restless with the company's dormant stock price, GE expanded its stock buyback plan, saying it will buy back $14 billion worth of stock over the rest of this year. On a conference call, GE's CEO, Jeff Immelt, said it was a "safe bet" that the company wouldn't make any major acquisitions in the second half of 2007.
Its shares were recently up 93 cents, or 2.4%, to $39.93 -- a five-year high.
The performance came despite pressure from the company's mortgage business amid turmoil in the subprime-lending industry. Reversing course, GE confirmed that it will sell WMC Mortgage, taking the company out of the U.S. home lending business. The move is another sign of how bad things have gotten for subprime lenders, who are suffering from a spike in default rates as the U.S. housing market slumps.
"We made a proactive decision to exit the business," said GE's chief financial officer Keith Sherin on the conference call following the earnings release. "We're working on getting a buyer."
Overall, the Fairfield, Conn.-based conglomerate reported earnings of $5.42 billion, or 53 cents a share, up from $4.95 billion, or 48 cents a share, a year earlier. Its revenue increased 12% to $42.32 billion from $37.74 billion in the year-ago period.
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Earnings from continuing operations rose to 52 cents a share from 46 cents, in line with the company's April forecast for earnings of 52 cents to 54 cents a share.
The quarter included charges of $600 million of restructuring and other items, including $200 million in losses from subprime mortgages. That was offset by a gain of $500 million on the sale of 40% of its nuclear-energy business to Japan's Hitachi Ltd.
On average, analysts polled by Thomson Financial expected earnings of 52 cents a share and revenue of $41.7 billion.
For the third quarter, GE said it expects to make 54 cents to 56 cents a share, in line with a 55-cent Wall Street estimate. The company said it is "on track to deliver a solid, low-risk performance in 2007 with high visibility to organic growth."
"We like the way the company looks right now and feel like we can deliver returns to investors," said Immelt. "We're going to review some positions in the third quarter and be very opportunistic."
GE's infrastructure business led its second-quarter performance with 23% profit growth. Its commercial-finance business was also strong, with 18% growth in profits. Those two units account for 56% of GE's profit from its businesses.
"Global demand for our Infrastructure products and services is unprecedented with double-digit revenue and earnings growth in Oil & Gas, Aviation, Energy, and Transportation," said GE in a press release. "Strong global origination at Commercial Finance contributed to double-digit growth in assets, revenues, and earnings."
GE's infrastructure business posted an 83% increase in major equipment orders. Its oil and gas unit posted a 76% increase in segment profit on a 67% gain in revenue. For the third quarter, the company is expecting to post a 20% jump in profits, with revenue gains better than 15%.
GE Money posted an 8% jump in profits on a 17% increase in revenue.
Its media business, NBC Universal, posted its third quarterly profit in a row, continuing its turnaround effort as it works to cut costs. Its profits rose 2% for the second quarter, though revenue was down 6%.
GE's industrial business posted a 1% increase in segment profits on a 4% decline in revenue.
Also, its health care business was a laggard, with an 8% drop in segment profit on a 1% decline in revenue.
On Wednesday, GE said it was walking away from an $8.1 billion deal with
for two units that make medical-diagnostic equipment. The companies mutually agreed to call off the deal, which was announced in January, citing an inability to come to an agreement on financial terms.