GE shocks market with profit drop, shares tumble

By Scott Malone

BOSTON (Reuters) - General Electric Co (GE.N) posted an unexpected 6 percent drop in first-quarter profit on Friday, the biggest shock yet to an American industrial bellwether from the credit crisis and the latest sign the U.S. economy may be in a recession.

The second-largest U.S. company by market capitalization said profit fell about 20 percent at its financial services arms, which accounted for more than a third of GE's total revenue in the quarter. Weakness at its health care and industrial divisions also weighed down results.

The news sent GE shares down 12.8 percent on the New York Stock Exchange, their sharpest drop in two decades, wiping out about $45 billion of market value and dragging down global markets.

"It's confirmation that we're in a recession," said Jerome Heppelmann, portfolio manager at Liberty Ridge Capital in Berwyn, Pennsylvania.

Profit from continuing operations was 44 cents per share, 7 cents below analysts' average forecast of 51 cents, according to Reuters Estimates. GE cut its growth forecast for the year, citing a slower economy and challenging capital markets.

"The financial services environment was very difficult and became even more difficult late in the quarter," said Jeff Immelt, chairman and chief executive, on a conference call with analysts and investors. "We experienced an extraordinary disruption in our ability to complete asset sales."

The deterioration followed the near collapse of Bear Stearns Cos Inc BSC.N last month, he said. Immelt said that financial services was responsible for 5 cents of GE's 7-cent- per-share miss of Wall Street's expectations.

GE shares closed down $4.70 to $32.05 on the New York Stock Exchange. This year they are down about 13.5 percent, about double the Dow Jones Industrial average's .DJI decline.

GE was the worst performer on the Dow, responsible for more than 37 points of the index's total 256-point decline. Every component of the Dow, except Wal-Mart Stores Inc (WMT.N), fell.

U.S. corporate bonds spreads also widened on the news and the cost of protecting GE Capital Corp's debt against default rose. Five-year credit default swaps on GECC rose by about 6.5 percent, to 131 basis points. The increase means it costs $131,000 a year to protect $10 million of GE debt, compared with $123,000 on Thursday.

BY THE NUMBERS

GE reported a net profit of $4.3 billion, or 43 cents per diluted share, compared with $4.57 billion, or 44 cents, a year earlier. Revenue rose 7.8 percent to $42.24 billion.

The sharpest drop in segment profit came in the conglomerate's financial divisions, with commercial finance down 20 percent and GE Money consumer finance down 19 percent. GE's finance arms make commercial and consumer loans, including financing purchases by corporations and individuals.

Profit at GE's industrial unit, which makes things such as lighting and appliances, fell 16 percent and health care was down 16 percent.

Those declines overshadowed a 17 percent rise in profit at the infrastructure unit, which has been boosted by emerging- market demand for heavy equipment such as electricity-producing turbines. Television and film affiliate NBC Universal's profit rose 3 percent.