GE cuts profit outlook over Europe weakness
New York, April 20, 2013
General Electric (GE) warned of slowing profit growth in its industrial businesses due to weakness in Europe and sliding turbine sales.
The conglomerate, the world's biggest maker of jet engines and electric turbines, said yesterday it expects industrial profit to rise by high single digits to double digits this year. Previously it had forecast double-digit growth.
Chief executive Jeff Immelt blamed slumping sales of wind turbines and gas turbines for the outlook cut, as well as the weakening European economy. But he said he still expects overall earnings, which include GE Capital, to improve this year.
Of concern to Wall Street: GE will try to boost earnings by slashing $1 billion in costs this year, rather than relying primarily on sales growth.
Wall Street analysts, who earlier in the day hailed GE's better-than-expected first-quarter revenue, grew unnerved as the new outlook was disclosed.
"The level of uncertainty in terms of their ability to meet their goals has risen a little bit," said Perry Adams, portfolio manager at Northwestern Bank, which holds GE shares.
GE expects to sell about 95 gas turbines this year, down from 133 in 2012, due to sliding electricity demand from developed markets, Keith Morin, GE's chief financial officer, said.
Profit in the power and water unit - GE's second-largest unit and the seller of wind and gas turbines - fell 39 per cent in the first quarter, and results aren't expected to improve.
"We believe it's going to be hard for our power and water business in 2013 to meet 2012" results, Immelt said.
Sales in Europe are "weaker than expected," executives said, as demand drops, not only for GE products but for electricity, which dents demand for turbines.
While orders to the oil and gas unit jumped 26pc in the quarter, GE probably won't recognise revenue from some of those sales for at least 12 months, Morin said.
"Investors are clearly disappointed," said Brian Langenberg, an independent analyst who tracks GE.
Strong sales of jet engines and home appliances helped GE's first-quarter revenue beat expectations, assuaging fears of a miss after a lukewarm report on March US factory activity.
GE said revenue rose slightly to $35 billion, surpassing the $34.51 billion analysts had expected, according to Thomson Reuters I/B/E/S.
"That is a beat on revenue, and that's important because the Street has been very worried about revenue numbers at industrial firms because the quarter appears to have tailed off in March," said Jack DeGan, chief investment officer at Harbour Advisory in Portsmouth, New Hampshire, which owns GE shares.
The Institute for Supply Management said earlier this month that US factory activity grew at the slowest rate in three months in March, suggesting the economy lost some momentum at the end of the first quarter.
GE shipped 596 commercial jet engines during the quarter, boosting profit at the aviation unit by 9pc. The company also touted a recent contract with Boeing to supply engines for the 777 aircraft.
Despite price increases, consumers gobbled up GE's refrigerators, stoves and microwaves, boosting profit in the home and business solutions unit by 39pc.
The company's order backlog - a closely watched indicator of future sales - rose to $216 billion from $210 billion in the fourth quarter of 2012.
Backlog can be a positive sign that customers are willing to wait in line for a company's products, or a sign that a company is having a hard time meeting demand. GE's backlog has grown consistently in recent quarters.-Reuters