Updated from 10:35 a.m. EDT

Shares in General Electric ( GE) were sinking Thursday morning after the company's 2003 earnings goals were questioned in a research note.

Lehman Brothers lowered its estimate of GE's 2003 earnings by 5 cents a share due to lowered expectations for pension income, the cost of expensing stock options and expected weakness in its aircraft engines and power systems divisions.

The brokerage trimmed its 2003 estimates to $1.76 a share from $1.81 but left its 2002 EPS unchanged at $1.65.

Lehman said GE's pension income could be $300 million lower in 2003 as the stock market continues to sink; that could cut net income by 2 cents a share. Expensing stock options will cost an additional penny a share.

Meanwhile, the brokerage said weakness in the aircraft engines and power systems will each cut EPS by a penny as cash-strapped airlines continue to scale back airplane purchases, lowering commercial aircraft engine demand. Delivery of gas turbines could be in jeopardy as energy companies continue to struggle.

Lehman's rating on GE remains overweight and its price target is still $45.

But some analysts said they were puzzled by the dive in GE shares, which were down more than 3% all morning.

"It's not new news" that the power and aircraft divisions are struggling, that the pension fund will dip and including employee stock options as expenses will cut earnings, said Jeffrey Germanotta, an analyst with William Blair in Chicago.

Germanotta said his 2003 estimate has been $1.76 "for a while now," and that includes the four reasons that Lehman cited. FirstCall's consensus for GE's earnings is still $1.81 based on forecasts of 14 analysts ranging from $1.76 to $1.85.

Also on Thursday morning, GE announced it is combining its lighting and appliance units into GE Consumer Products. Analysts are viewing the consolidation as a positive move.

"It makes a lot of sense. It's possible that there will be opportunities to drive the two product types through common channels," said Scott Davis, an analyst with Morgan Stanley.

Davis, who is leaving his 2003 EPS at $1.79 for now, said GE's numbers could continue to go down if analysts feel less comfortable with the economic recovery and if declines persist in the power and aerospace industries.

"There is possibly some downside to the earnings," Davis said. But he warned that GE is notorious for taking costs out of their balance sheet and he wouldn't be surprised if they did that before 2003 earnings come out.

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