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Latest Miss: GE Blames Capital Markets for Earnings Woes

So much for those earnings that GE CEO Jeffrey Immelt had said were “in the bag” just a few weeks ago — in a stunning reversal that caught investors and analysts alike by surprise, General Electric Co. (GE) reported Friday its first decline in quarterly earnings since 2003 and cut its earnings forecast amid historic troubles in the capital and mortgage markets. The company reported a 6 percent drop in first-quarter net profit, with earnings falling to $4.3 billion, or $.43/share. Revenues were at $42.2 billion, up 8 percent. “We knew the first quarter was going to be challenging, but the extraordinary disruption in the capital markets in March affected our ability to complete asset sales and resulted in higher mark-to-market losses and impairments,” Immelt said. “Our inability to complete these asset sales and higher mark-to-market losses and impairments impacted earnings by $.05 per share versus plan.” GE Money saw quarterly earnings drop 19 percent on a yearly comparison basis to $995 million, while commercial finance took a 20 percent hit, falling to $1.16 billion. As a result, Immelt revised the company’s outlook for 2008, saying that the company now expects to report earnings per share of $2.20 to $2.30 per share and that financial services earnings will decline 5 to 10 percent on the year. Investors and analysts wanted answers for one of the biggest earnings misses by GE in recent memory, according to a report at Bloomberg:

On a conference call today, analysts demanded that Immelt explain why he told retail investors on a March 13 Webcast that Fairfield, Connecticut-based GE would likely meet its annual forecast of at least $2.42 a share. “Two days after the Webcast, the Bear Stearns situation took place,” Immelt said. “The last two weeks in March were a different world in financial services.”

Goldman Sachs immediately moved shares of the conglomerate to a “neutral” rating on the news, saying that the earnings miss raised “credibility concerns,” according to a separate report at Bloomberg. Sources that spoke with Housing Wire wondered aloud if the miss was a sign of things to come this earnings season. “We’ve got a few senior execs on record saying we’re nearly out of this mess,” said one source, a bond trader who asked not to be named. “If the market conditions can drive a ‘surprise’ 5 cent per share hit at somewhere like GE, what are we looking at for the investment banks?” Morgan Stanley CEO John Mack told reporters this week that he believed the credit crunch was nearly over, although he didn’t comment on earnings expectations for the Wall Street firm. “We are seeing the collateral damage to the economy,” Bill Strazzullo, chief market strategist at financial advisory firm Bell Curve Trading, said in an interview with Bloomberg Television on Friday. “We saw this with retail sales, consumer confidence, now we are seeing this with the General Electric earnings. When you look at this from the vantage point on the effect of the broader economy, things are getting worse.” Disclosure: The author owned no positions in any publicly-traded firm mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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