GE shocks market with profit drop, shares tumble

By Scott Malone

BOSTON (Reuters) - General Electric Co (GE.N: Quote, Profile, Research, Stock Buzz) 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.