Updated from 11:55 a.m. EDT

General Electric

(GE) - Get Report

will continue squeezing more out of relatively less in the third quarter, and said its sometimes-maligned appetite for acquisitions remains robust.

The industrial giant, which Friday reported earnings and revenues that were in line with analyst forecasts, once again expects profit growth to outpace revenue growth in the third quarter, according to executives speaking on a conference call. The company expects income to accelerate 20% to 25%, while sales advance 8% to 10%.

GE is expecting to earn about $16.5 billion, or $1.65 to $1.67 a share, for the year.

Strong Quarter

The company said its second-period earnings were higher than any quarter in the company's history. Net income was $4.426 billion, or 44 cents a share, in the quarter, up from $3.897 billion, or 39 cents a share, a year ago. Analysts polled by Thomson Financial/First Call were looking for 44 cents.

The results include a $358 million favorable settlement with the IRS and a $70 million after-tax benefit of terminations of gas turbine orders, as well as a $350 million in adjustments for estimates of prior-year losses and a $110 million after-tax writedown to recognize impairment of



Revenue for the quarter was up 4% to $33.2 billion from $32 billion last year, missing the consensus estimate of $35.93 billion. GE said its industrial revenue was up 10% for the quarter, and its power systems and medical systems saw double-digit revenue increases. GE Capital posted a 4% decline in revenue because of WorldCom and Employers Reinsurance Corporation, the company said.

The shares closed up 4.6% to $28.60.

Short and Long

GE said that it was most optimistic about growth in its short-cycle businesses -- or those that deliver in three to six months. On the whole, it is forecasting the group's operating profit to be up 25% to 30%.

Executives at GE were bullish on the economy -- they do not think it will dip into a second recessionary phase -- even as reports suggest a significant slowdown in consumer spending for the rest of this year.

Among short-cycle divisions, operating profit at broadcasting unit NBC is predicted to grow 50% to 60%, as a result of better advertising pricing, while GE's plastics unit, which is sometimes viewed as a proxy for the manufacturing sector as a whole, is forecasted to have 10% to 15% income growth.

"The plastics division has been a leading indicator going up and down," said Jeffrey Immelt, CEO of GE, on the call. "And it looks like it's tracking to what we have typically seen in the past."

Power Shortage

GE's power systems unit, which had a 65% jump in second-quarter operating profit, is not expecting any growth in the third. GE has shipped 260 turbines this year, and it expects to ship 150 in 2003.

At its financing division, GE Capital, the company is expecting 30% to 35% income growth. But that will exclude losses from Employment Reinsurance Corp., which hemorrhaged $236 million in the second quarter.

Executives at GE did not say if they expected any more charges at ERC this year. A $350 million second-quarter adjustment came after an actuarial update of its property and casualty insurance business.

GE has been chastised in some quarters for relying too much on acquisitions to fuel revenue growth. In its conference call, however, the company said its acquisition plans remain strong, with around $5 to $10 billion in the pipeline that is concentrated in its medical, power, and materials businesses.

Rapid Growth

Jeff Graff, an analyst at Victory Capital Management, which owns GE shares, didn't criticize GE's focus on acquisitions, but said: "It's going to be a major part of the company's strategy going forward."

During the second quarter, GE's acquisitions accounted for 6% of 10% overall revenue growth at its industrial divisions. A year ago, they made up 3% of 8% total industrial revenue growth. (The company doesn't break out acquisition figures at GE Capital, where it does a significant amount of deals.)

On the call, GE executives downplayed its reliance on acquisitions. "It is an interesting and attractive way to grow," said Immelt on the call. "But it is not our only way to grow."