GE profit rises, to sell subprime unit

BOSTON (Reuters) - General Electric Co. (GE.N) reported a 9.6 percent rise in quarterly earnings Friday, in line with Wall Street expectations, on strong demand for jet engines, gas turbines and other heavy equipment, sending its shares to a five-year high.

Those businesses overshadowed weakness at its loss-making subprime lending unit, WMC Mortgage, which GE has decided to put up for sale.

The world's second-largest company by market capitalization also said it would roughly double its 2007 share buyback to $14 billion. It will use some of the funds budgeted for the planned $8.1 billion purchase of the diagnostics business of Abbott Laboratories Inc. (ABT.N). That deal was scrapped this week.

"People are happy they're not doing the Abbott deal, and I'm happy they're buying back stock," said Peter Bates, equity analyst at T. Rowe Price in Baltimore, Maryland.

Some investors had worried that GE was paying too much for the Abbott business.

GE, whose interests also include NBC media, said second-quarter net income rose to $5.42 billion, or 53 cents per share, from $4.95 billion, or 48 cents a share, a year earlier.

Profit from continuing operations was 52 cents per share, matching analysts' average forecast as compiled by Reuters Estimates.

Revenue rose 12 percent to $42.32 billion. Sales growth outside the United States led the way, rising 21 percent.

"The U.S. consumer seems fine, unemployment is at low levels and we're not seeing really any warning signs with the U.S. consumer," GE Chief Executive Jeff Immelt said on a conference call with analysts.

HEALTH CARE A WEAK POINT

One weak spot was GE's health-care business, which makes diagnostic imaging tools like CAT-scan and MRI machines. Profit in that unit fell 8 percent. GE blamed regulatory changes.

The company said one such change was the way the U.S. government reimburses patients for some diagnostic imaging tests. That, in turn, reduced demand for the machines.

But Fairfield, Connecticut-based GE said it expects matters to improve at GE Health Care and forecast flat profit for that unit in the third quarter.

Second-quarter profit in the infrastructure segment, which manufactures heavy equipment, rose 23 percent, making it the fastest-growing unit, followed by commercial finance, which showed an 18 percent gain.

Despite the subprime weakness, profit at GE Money rose 8 percent.

GE said it expects to report third-quarter earnings from continuing operations of 54 cents to 56 cents per share. Analysts expect 55 cents, according to Reuters Estimates.

"Some people were expecting them to take guidance down because of the plastics unit, but they kept it the same, which is the result of the big stock buyback," said Jerome Heppelmann, portfolio manager of Old Mutual Large Cap Fund and Old Mutual Focused Fund at Liberty Ridge Capital in Berwyn, Pennsylvania.

SHARES CLIMB

GE shares were up 88 cents, or 2.3 percent, to $39.88 in midday trade on the New York Stock Exchange. Earlier, they rose as high as $40.17, their best level since March 2002.

Even with the rally, the shares still lag the major U.S. indexes this year. GE is up 7 percent, while the Dow Jones industrial average .DJI is up 11 percent and the Standard & Poor's 500 .SPX is up 9 percent. GE is a Dow component.

GE's market capitalization is $410.19 billion, second only to Exxon Mobil Corp.'s (XOM.N) $510.94 billion, according to Reuters data.

(Additional reporting by Helen Chernikoff and Jennifer Coogan in New York and Anshuman Daga in London)