UPDATE 5-GE cautious on 2013 after sales miss Wall Street target

Fri Oct 19, 2012 1:13pm EDT

* Earnings of 36 cents a share meet analysts' estimates
    * Net profit rises 8.3 percent; revenue up 2.8 percent
    * Holds full-year profit outlook steady
    * Sees no major economic improvement in 2013
    * Shares down 2.5 percent


    By Scott Malone
    Oct 19 (Reuters) - General Electric Co reported
weaker-than-expected third-quarter revenue, hurt by unfavorable
exchange rates, and set a cautious tone for 2013, saying it
expects the tough economic environment to continue.
    The largest U.S. conglomerate on Friday reported a 2.8
percent rise in sales, with revenue down at its aviation and
healthcare arms, while the stronger U.S. dollar crimped overall
results by diminishing the value of its foreign sales.
    Its shares fell almost 3 percent.
    GE, which is also the world's biggest maker of electric
turbines and jet engines, stood by its forecast for full-year
earnings to rise at a double-digit percentage rate. It said
full-year sales would be up just 3 percent, down from a prior 5
percent growth forecast, reflecting continued efforts to cut
back the GE Capital finance arm and exchange rate fluctuations.
    The company, which reported an 8 percent rise in
third-quarter earnings, is not counting on any significant
improvement in the world economy next year.
    "We're not assuming that Europe gets any better," Chief
Executive Officer Jeff Immelt told investors on a conference
call. "We're looking at '13 being kind of like '12, with the big
variable being the fiscal cliff."
    The fiscal cliff refers to $600 billion in spending cuts and
tax increases that could take effect at the end of the year if
U.S. lawmakers fail to reach an accord on shrinking the federal
deficit.
    GE does not expect those cuts to take effect, Immelt said.
    "We're making the same assessment most people do, that
somehow it gets resolved," said Immelt, who is a top adviser to
President Barack Obama on jobs and the economy.
    The Fairfield, Connecticut-based company was not alone in
taking a guarded view of next year. Fellow manufacturer
Honeywell International Inc, which also reported revenue
below analysts' expectations, said it expects revenue to grow at
a low-single-digit rate in 2013, excluding the effects of
acquisitions and currency fluctuations.
    "This is going to be another tough year," Honeywell Chief
Financial Officer Dave Anderson said in an interview.
    GE shares fell 64 cents to $22.17 on the New York Stock
Exchange, giving back a little of their significant gains over
the past year.
    At Thursday's close, GE has climbed about 41 percent over
the past year, reaching levels not seen since the 2008 financial
crisis and sharply outpacing the 22 percent rise of the Dow
Jones industrial average.    
   
    
    GE PROFIT MEETS STREET VIEW
    Third-quarter net income increased to $3.49 billion, or 33
cents per share, from $3.22 billion, or 22 cents per share, a
year earlier.
    Factoring out one-time items, the profit was 36 cents per
share, meeting the analysts' average estimate, according to
Thomson Reuters I/B/E/S.
    Revenue rose to $36.35 billion from $35.36 billion. Wall
Street expected $36.94 billion.    
    "The market will see this as a slight disappointment," after
an upbeat late-September presentation to analysts that led some
investors to expect stronger growth, said Jack DeGan, chief
investment officer at Harbor Advisory Corp in Portsmouth, New
Hampshire.
    "They met expectations for earnings, and they were light on
revenues," he said. "If you add back forex, they beat."
    GE said exchange-rate fluctuations had lowered its reported
revenue by $1.1 billion in the quarter.
    CFO Keith Sherin noted the U.S. dollar had been particularly
weak in the third quarter of 2011, as a result of the battle in
Congress over the U.S. debt ceiling, and said he expected that
pressure to ease.
    "If the dollar stays where it is for the fourth quarter,
that'll be less of a drag," Sherin said in an interview.
    
    ENERGY UNIT OFFSETS EUROPE
    Among GE units, the energy arm had the biggest revenue
growth, with a 12 percent increase in the quarter. Immelt had
bulked up that business in 2010 and 2011 with an $11 billion
wave of acquisitions, largely in the oil and gas sector.
    Most major industrials have experienced weak demand in
Europe as a result of the debt crisis there, and GE said Europe
had remained "tough" in the quarter.
    "The most important thing out of the earnings report is that
they kept their full 2012 outlook," said Oliver Pursche,
president of Gary Goldberg Financial Services in Suffern, New
York. "The fourth quarter, we think, is going to be challenging
for companies, especially on the revenue side. Them keeping that
outlook intact is a positive."
    Immelt has committed the company to buy back enough stock to
lower its share count below 10 billion - its level in 2008. That
year GE sold new shares to raise cash during the financial
crisis.
    GE said it had bought back $3 billion worth of shares so far
this year. As of Sept. 30, GE had 10.52 billion shares
outstanding, down from 10.58 billion a year earlier. 
    GE competes with some of the world's largest and
best-financed manufacturing groups, including United
Technologies Corp, Germany's Siemens AG and
France's Alstom SA.
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