NBC Universal fit within GE questioned

By Kenneth Li and Nick Zieminski

NEW YORK (Reuters) - NBC Universal's first-quarter performance fell far short of parent General Electric's expectations, again raising questions over whether the broadcast network belongs within the industrial conglomerate.

While NBC Universal's 3 percent rise in profit bucked an overall slide in GE's financial performance, it was short of the company's target of a 5 percent to 10 percent increase.

"I continue to have concerns about NBC Universal and its fit in the overall portfolio," said Mike Gandrud, senior analyst at Optique Capital Management.

GE blamed NBC Universal's results on a weak local advertising environment, where ad spending fell 11 percent, offsetting double-digit profit growth in its cable networks. This was despite heavy spending on political ads as candidates for the U.S. presidential election raise a record-breaking near $1 billion to finance their campaigns.

"This is an indicator that it's tough out there," GE Chief Financial Officer Keith Sherin told analysts on a conference call on Friday, referring to local advertising performance.

To be sure, other units of GE, such as financial services, health care and industrial divisions, performed worse than NBC Universal in the first quarter.

While NBC's 3 percent profit growth was less than half of the fourth quarter's 10 percent rise, GE's overall profit fell 6 percent in the first quarter, sending its shares down 12.44 percent to $32.18 on the New York Stock Exchange.

"(The miss) forces the focus to the portfolio," Sterne Agee analyst Nick Heymann said. "You cannot be in broadcasting and entertainment and think you're going to outperform."

NOT A GOOD TIME TO SELL

Speculation over a sale of NBC Universal has dogged the company in recent months. Media executives and investors have said that NBC Universal, or parts of it, could fit well with a Time Warner Inc or Viacom Inc.

But while a sale might make sense strategically, analysts also note that current market conditions are not ideal for fetching a good price. NBC's modest 5 percent rise in digital revenue confirmed that even the fastest area of growth for media -- Internet revenue -- is now under pressure.

It was also not immediately clear to what extent a prolonged Hollywood writers strike had on the division, whose revenue rose 3 percent in the first quarter, short of a targeted 10 percent.

"We wouldn't want them to do anything at a discounted price or a fire sale. We'd want it to be in a stronger economy and a stronger media environment," said Russell Croft, co-manager of the Croft Value Fund in Baltimore, which owns GE shares.

Furthermore, with operating profit margins of about 20 percent, NBC Universal is a good cash flow generator for GE, which can use the funds elsewhere in its portfolio, some analysts said.

"I would not be selling a business like that," said Standard & Poor's analyst Richard Tortoriello.