Even in a rough economy, GE miss jars confidence

By Scott Malone - Analysis

BOSTON (Reuters) - When General Electric Co (GE.N: Quote, Profile, Research, Stock Buzz) held its first-ever briefing for individual investors in March, Jeff Immelt said that even with the U.S. economy "gosh-darn close" to recession, he saw no reason to back down from predictions of 10 percent profit growth this year.

So when the second-largest U.S. company by market capitalization told Wall Street on Friday that first-quarter profit had fallen 14 percent short of analysts' forecasts, it shook investors' trust in the company.

Immelt, GE's chairman and chief executive, blamed most of the shortfall on turmoil in the credit markets following the near-collapse of Bear Stearns Cos BSC.N.

"We experienced an extraordinary disruption in our ability to complete asset sales," he said on a conference call with investors. "This was something that we clearly didn't see until the end of the quarter."

The Bear Stearns situation was unprecedented enough to prompt the U.S. Federal Reserve to help organize a deal in which JPMorgan Chase (JPM.N: Quote, Profile, Research, Stock Buzz) acquired the investment bank to prevent its collapse. But investors said they still feel burned by GE's sudden change in tone, which helped wipe more than $40 billion off its market value on Friday.

"I'm never comfortable with a company talking about, 'Gosh, today we know one thing and two weeks later we know something else,'" said Eric Schoenstein, principal, at Jensen Investment Management in Portland, Oregon, which manages about $3 billion in assets and holds GE shares. "But on the other hand I do think there was an unprecedented set of circumstances that I think does carry some validity."

CREDIBILITY CONCERNS

Goldman Sachs, one of at least three major investment banks to cut ratings on GE following the news, took a blunter tone.