GE profit meets expectations; outlook steady

BOSTON (Reuters) - General Electric Co (GE.N) on Friday posted a second-quarter profit in line with Wall Street forecasts as its finance business recovered from a brutal first quarter, but the company warned those operations are not out of the woods yet.

The U.S. conglomerate, whose operations range from making jet engines to running NBC Universal media, left its full-year profit forecast unchanged at flat to up 5 percent.

But GE, a bellwether for the entire U.S. economy, forecast a rough third quarter for its finance arms, with commercial finance down 10 percent to 15 percent and profit at GE Money flat to down 5 percent, due to a tough real estate market and rising loss provisions.

The second-quarter results came three months after GE stunned Wall Street with an unexpected drop in first-quarter profit, saying the global credit crunch and near collapse of investment bank Bear Stearns had taken a heavy toll on its finance arms, which make up about half its business.

"There was a lot of concern as to the credit crisis ... and how it was going to affect GE Money" in the second quarter, said Perry Adams, vice president and senior portfolio manager at Huntington Private Financial Group in Traverse City, Michigan. The unit's earnings fell 9 percent, but the consensus forecast was for a decline of 15 percent to 20 percent, he said.

GE, the No. 2 U.S. company by market capitalization after Exxon Mobil Corp (XOM.N), said net income in the quarter came to $5.07 billion, or 51 cents per share, down from $5.38 billion, or 52 cents, a year earlier.

Earnings from continuing operations were flat at 54 cents per share, matching the average Wall Street estimate as compiled by Reuters Estimates.

Revenue rose 11 percent to $46.89 billion.

The strongest growth, as expected, came at GE's infrastructure unit, where earnings were up 24 percent. The unit makes jet engines, electricity-producing gas turbines and equipment used in oil and gas production.

Commercial finance profit rose 7 percent. Profit rose 8 percent at its health care arm and 1 percent at NBC Universal, and was down 32 percent at its industrial segment.

U.S. ECONOMY SLUGGISH

The Fairfield, Connecticut-based company affirmed its full-year earnings per share forecast of $2.20 to $2.30. Analysts, on average, expect $2.21.

"We had a solid performance in a tough environment," Chairman and Chief Executive Jeff Immelt told investors on a conference call. "Our outlook on the future hasn't changed. We plan on a tough environment and we can execute in that."

The size and breadth of GE's operations make it a key U.S. company.

Some investors showed tepid enthusiasm, noting GE drastically lowered expectations three months ago.

"They are barely beating last year's earnings in what is still a strong up cycle for much of their core businesses," said Brian Langenberg, principal at money managers Langenberg & Co in New York. While he was pleased with the second-quarter results, "it doesn't mean that all of a sudden everything is wonderful," he said.

Goldman Sachs analyst Dean Dray wrote in a note to clients: "There were no glaring disappointments, although initial (third-quarter) guidance was a touch light."

BUYER FOR JAPANESE UNIT

In the face of soft results, GE accelerated the pace of reworking its portfolio. The company disclosed on Friday a $5.4 billion deal to sell its Japanese consumer finance business to Shinsei Bank (8303.T). It expects the deal to close during the third quarter.

GE said it plans to spin off to shareholders its consumer and industrial operations in the first half of 2009. It is also pursuing a sale of its U.S. private-label credit card operations.

Some voices on Wall Street have called on Immelt to take more drastic actions, including selling all of GE's financial arms and its 80 percent stake in NBC. France's Vivendi SA (VIV.PA) holds the minority stake in NBC.

Immelt has been adamant about keeping NBC.

Since GE's first-quarter miss, Wall Street has been hit by a raft of profit warnings from companies including United Parcel Service Inc (UPS.N) and Rockwell Automation Inc (ROK.N).

The forecasts have raised worries that a slowing U.S. economy and surging energy and raw materials prices are taking a heavy toll on corporate America.

GE shares were up 44 cents, or 1.5 percent, at $28.08 in morning trade on the New York Stock Exchange. In the past 52 weeks, the shares have traded in a range of $42.15 to $26.16.

So far this year the shares are down 24 percent, compared with a 16 percent decline in the blue-chip Dow Jones industrial average .DJI.

(Additional reporting by Nick Zieminski and Deborah Jian Lee in New York, Patrizia Kokot, Amanda Cooper, Michael Taylor, Dominic Lau and Sitaraman Shankar in London; Editing by Derek Caney and John Wallace)