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No Slowdown for GE

CEO Immelt says economic activity is 'extremely robust.'

General Electric

(GE) - Get Report

CEO Jeff Immelt said global economic activity "remains extremely robust" and he doesn't see any signs of a slowdown anywhere.

Immelt made the comments on a Friday conference call with analysts that followed GE's third-quarter earnings release, in which the industrial bellwether reported earnings in line with expectations and reaffirmed its outlook for the year.

He was addressing persistent concerns about a U.S. economic slowdown resulting from the downturn in the housing market, which caused a rash of mortgage foreclosures, a lag in consumer spending and a late-summer panic in the global credit market.

"We don't see any imminent improvement in housing," said Immelt on a conference call with analysts following GE's third-quarter earnings release. "But the rest of the U.S. seems fine to us."

Amid the housing fiasco, Wall Street has looked abroad for growth opportunities, and in a recent research note, Goldman Sachs analyst Deane Dray said that GE operates "squarely in the epicenter of the global infrastructure boom," making it an attractive investment play on that phenomenon.

The Fairfield, Conn., conglomerate reported third-quarter net income of $5.54 billion, or 54 cents a share, up from $4.87 billion, or 47 cents a share, a year earlier.

The results included a $1.8 billion gain from the $11.6 billion sale of its plastics operations to Saudi Basic Industries. That was offset by $600 million in restructuring charges and a $1.4 billion charge related to the planned sales of its Japanese consumer-finance business and its WMC subprime mortgage business.

Excluding one-time items, GE's earnings for the period rose 7% to $5.09 billion, or 50 cents a share, matching analysts' average estimate reported by Thomson First Call.

Shares of GE recently were down 90 cents, or 2.2% to $40.69 despite gains in the broader stock market Friday. Jack De Gan, money manager with Harbor Advisory, noted that GE's health care business was a drag on its overall portfolio.

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"They paid some pretty fancy prices on some of the acquisitions they have made in health care, and that has yet to play out," says De Gan. "Also, the financial business is always a worry because GE is one of the biggest banks in the world if you separate out its finance business, and there's more trouble with credit deterioration to come."

De Gan says the $1.4 billion charge from GE's global finance business was a disappointment.

"There was more damage in there than was disclosed last quarter, and overall, there wasn't any upside to drive the stock above where it was so traders were selling," he says. "That said, the things that will drive the stock over the long-term are intact."

GE's revenue for the quarter increased 12% to $42.53 billion. Organic revenue -- which excludes acquisitions, divestitures and foreign-currency fluctuations -- rose 8%. Orders increased 20% to $24 billion.

"GE delivered a solid quarter in spite of extreme volatility in the financial services market and some one-time items in our industrial businesses," said Immelt.

Infrastructure, GE's largest segment by revenue, saw its profit rise 12%. Revenue from that segment, which makes jet engines, water systems, wind turbines and other items, climbed 19% to $14.45 billion, with oil and gas, transportation and energy leading the gains.

Earnings in the consumer-finance business climbed 13% on a 23% rise in revenue, and its commercial-finance business posted a 12% increase in profits on a 17% increase in revenue.

GE's health care earnings dipped 1%, while revenue in the business increased 4% to $4.06 billion.

NBC Universal, the company's media unit, reported a 9% rise in profits and a 3% increase in revenue to $3.76 billion. Investors have called for GE to sell NBC as it struggles to contend with the rise of the Internet, but the

Financial Times

reported Thursday that the company's executives are not considering a sale of the unit until after the 2008 Olympics in Beijing.

Looking ahead, GE reiterated that it expects 2007 earnings from continuing operations of $2.19 and $2.22 a share. For the fourth quarter, the company projects earnings of 67 cents and 69 cents a share, bracketing Wall Street's 68-cent target.