Citing Finance and Bear Stearns, GE Misses Guidance.
General Electric Co. unexpectedly reported its first quarterly profit decline since 2003, sending U.S. and European stocks lower, as the credit market’s seizure spread to the world’s third-largest company by market value. GE dropped as much as 12 percent in New York trading, the most since the October 1987 market crash. The decline wiped out about $44 billion in market capitalization.
Chief Executive Officer Jeffrey Immelt cut the annual forecast he once told investors was “in the bag” for 2008 and had repeated as recently as March 13. GE now says capital markets seized up just days later, forcing it to cut the value of some securities in the last two weeks of the quarter and blocking some asset sales. The Federal Reserve’s March 14 move to help rescue Bear Stearns Cos. created “a different world,” he said today.
My Comment: Somehow the “rescue” of Bear Stearns created “a different world.” What would the world look like were it not for the rescue?
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.”
My Comment: With that, GE admits what many of us knew already. GE, like GM is not a manufacturing company. Both are finance companies loaded to the gills in debt. The difference between the two is GM has subprime products and subprime debt while GE has arguably higher qualities of debt and products.
The market turmoil also prevented GE from selling some finance assets, Immelt said. GE put its U.S. credit card business and Japanese consumer finance units up for sale last year. The health-care unit also trailed expectations.
My Comment: Let’s see if I have this straight. GE put financial assets up for sale last year, had no takers, but the Bear Stearns problem a month ago is the cause of all its woes.
GE missed its forecast for the commercial finance unit. That cut per-share profit by 5 cents and resulted in a lowered full- year forecast of $2.20 to $2.30 a share, down from the previous forecast of at least $2.42. Immelt had told investors in December that $2.42 a share was “in the bag.”
My Comment: Papa’s got a brand new bag.
What this all proves is that GE will not be immune to economic slowdowns. No finance companies will be.
Exploding Windows At GM
It’s fitting that GM, the other major finance company manufacturer masquerading as a manufacturer, is in the news today. Quick Hits: GM Recalls Cars With Exploding Windows.
It’s been a rough few weeks for the transportation industry. Fuel costs are at record highs and the speed at which airlines are going bankrupt is outpaced only by the frequency with which they’re canceling flights.
Carmakers aren’t immune to the hard luck. General Motors (GM) said today it would recall over 120,000 Pontiac Vibes. Apparently bolts have been coming loose, causing windows to spontaneously shatter. The news comes on the heels of a recall announced yesterday by Toyota Motors (TM) after its Corolla and Matrix models suffered similar problems.
GM says it received 107 complaints of glass breaking and 11 reports of minor injuries.
GM Daily Chart
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On the other hand, GE bagholders are looking at this plunge.
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Those thinking GE’s diversification and multinational characteristics would stand up in a financial onslaught need to think again.
Mike “Mish” Shedlock
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