GE results tarnish reputation as earnings master

By Kevin Plumberg - Analysis

NEW YORK (Reuters) - General Electric Co's (GE.N: Quote, Profile, Research, Stock Buzz) poor results on Friday have tarnished the conglomerate's reputation as a master at managing earnings expectations and has sent a chill up the spine of investors, already nervous at the start of the quarterly earnings reporting period.

The company, which has interests in just about every major sector of the global economy, reported first-quarter earnings per share of 44 cents, well below Wall Street expectations of 51 cents and cut its growth forecast for the year.

That would be bad enough at any major company, but given GE's record of matching or beating forecasts it is almost cataclysmic.

For nearly a decade, GE quarterly results have never come in below analysts' average earnings forecast, according to Reuters Estimates. In fact, in 29 of the 36 quarters prior to 2008, the company's quarterly earnings have matched estimates and on the other 7 they have beaten them.

That record has led some GE watchers to suggest the company has often managed its earnings by, for example, finding ways to make up any shortfall in one business by taking a nonrecurring gain in another area.

Its apparent inability to do that this time -- given the credit crisis and the weak U.S. economy -- should be a warning as it shows there was nothing a company of such complexity, with its array of different businesses, could pull out of the hat.

"GE is a huge company and they have a lot of levers they can pull to make sure they meet their earnings," said Ian McCulley, an analyst with Grant's Interest Rate Observer.

He said the miss indicated the company's problems went beyond its financial businesses and was a bad omen for the rest of the results season.