GE hits profit, but shares slide

By Scott Malone

BOSTON (Reuters) - General Electric Co (GE.N) posted quarterly profit that met expectations, driven by strong demand for heavy equipment and strength at its financial units, but its stock fell on concern about margins.

GE shares, which have gained 9 percent in 2007 after lagging the U.S. market for much of the past few years, declined 2 percent in early trade on the New York Stock Exchange on Friday.

"GE did not manage to convert growth into profitability as well as we had expected," wrote Deutsche Bank analyst Nigel Coe, in a note to clients. He said profit margins were down at GE's infrastructure unit, the company's biggest.

Profit at the unit, which produces gas turbines, jet engines and other heavy equipment, rose 12 percent on a 19 percent increase in revenue -- below the 20 percent analysts had been expecting. Analysts also noted that a tax rate of 11 percent for the quarter, below the year-to-date rate of 18 percent, contributed to overall earnings growth.

The second-largest U.S. company by market capitalization behind Exxon Mobil Corp (XOM.N) said the U.S. economy remains on solid footing, with the obvious exception of the slumping housing market.

Despite weakness in housing -- which prompted GE to place its sub-prime lending arm on the block this year -- and rising delinquencies among U.S. borrowers, the conglomerate's GE Money consumer-finance arm reported the strongest profit growth of its six segments.

"The global economy remains extremely robust. I just don't see any signs of a slowdown almost anywhere," said Chairman and Chief Executive Jeff Immelt, on a conference call with investors. "U.S. housing remains very tough, and we don't see any imminent improvement in housing. But the other economy around housing, light industrial, commercial, stuff like that, still appears to be in positive territory."

Because of the size and diversity of its operations, which range from manufacturing railroad locomotives to consumer lending, investors view GE as a bellwether of the U.S. economy.

PROFIT UP 13.8 PERCENT

Earnings increased 13.8 percent to $5.54 billion, or 54 cents per diluted share, from $4.87 billion, or 47 cents per diluted share, a year earlier.

Profit from continuing operations was 50 cents per share, in line with analysts' expectations, according to Reuters Estimates.

GE has experienced continued strong demand for its heavy equipment products in the United States and abroad. Commercial finance had a profit gain of 12 percent and GE Money consumer finance jumped 13 percent.

Profit at NBC Universal media was up 9 percent, marking that unit's continued turnaround.

Revenue rose 12.3 percent to $42.53 billion from $37.84 billion a year ago. Analysts, on average, expected $42.44 billion, according to Reuters Estimates.

GE said it expects to report fourth-quarter profit from continuing operations of 67 cents to 69 cents per share. Analysts look for 68 cents.