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GE Sees Long Growth Run

CEO Immelt promises big gains in the infrastructure business.
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Updated from 6:51 a.m. EDT

General Electric

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overcame turmoil in the subprime mortgage market and weakness in housing construction in the first quarter, thanks to strong demand for heavy machinery at its infrastructure business.

The Fairfield, Conn., conglomerate's earnings from continuing operations for the quarter rose to $4.51 billion, or 44 cents a share, from $4.18 billion, or 40 cents a share, a year earlier. The results matched Wall Street's expectations, according to Thomson Financial.

Revenue rose 6% from a year earlier to $40.2 billion, beating analysts' average estimate of $39.8 billion.

GE, a bellwether for the global economy, said orders rose 3% from a year ago, while major equipment backlog jumped 32% to $37 billion. The company said major equipment orders were 50% greater than shipments in the quarter.

On a conference call with analysts following the release, GE CEO Jeff Immelt said the strong demand at the company's infrastructure business reflects that the company is at "the very beginning of a long run of growth" on that front.

The infrastructure business posted a 28% increase in earnings in the quarter to $2.18 billion.

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Elsewhere, GE's financial business took a hit from the subprime mortgage fiasco that roiled the U.S. stock market during the first quarter. GE Money recorded a 2% increase in earnings for the quarter to $851 million. The slow growth was attributed to a poor showing from its WMC mortgage unit, one of the nation's largest issuers of subprime loans.

Another relative laggard at GE was its health care business, which posted a 5% gain in earnings for the quarter to $520 million. GE Healthcare had a temporary regulatory suspension on shipments of its surgical supplies that hurt the division's performance.

In a show of confidence in the strength of the economy, Immelt said that "both of these businesses are in great shape and should rebound during the remainder of the year."

GE's commercial finance business flourished, with a 21% gain in earnings to $1.42 billion. Its industrial business saw a 19% decline in profits to $481 million due to a 46% drop at its plastics business, which is up for sale.

On the call, Immelt said there has been "lots of interest" from potential buyers in the plastics business. He's expecting a first round of bids soon, and he hopes to close a deal in the fourth quarter of 2007.

GE's media division, NBC Universal, showed more signs of a financial turnaround taking shape. Its first-quarter profit was up 6% to $691 million.

NBC Universal announced Wednesday that it ended its simulcast of "Imus in the Morning," a low-cost, morning ratings boon for its lagging cable news network, MSNBC. The decision came amid public outcry over comments that Don Imus, a radio shock jockey, made on the air about the Rutgers University women's basketball team.

Morningstar analyst Peter Smith said in a report that in light of GE's first-quarter performance, he expects GE to have a "good but not great" year.

"Friday's release should provide some relief to those concerned about the health of the domestic economy, as there are still clearly pockets of strength," said Smith.

Shares of GE recently were up 27 cents, or 0.8%, to $35.45.