General Electric Co (GE.N) reported weaker-than-expected third-quarter revenue, hurt by unfavorable exchange rates, and set a cautious tone for 2013, saying it expects the tough economic environment to continue.
The largest U.S. conglomerate on Friday reported a 2.8 percent rise in sales, with revenue down at its aviation and healthcare arms, while the stronger U.S. dollar crimped overall results by diminishing the value of its foreign sales.
Its shares fell almost 3 percent.
GE, which is also the world's biggest maker of electric turbines and jet engines, stood by its forecast for full-year earnings to rise at a double-digit percentage rate. It said full-year sales would be up just 3 percent, down from a prior 5 percent growth forecast, reflecting continued efforts to cut back the GE Capital finance arm and exchange rate fluctuations.
The company, which reported an 8 percent rise in third-quarter earnings, is not counting on any significant improvement in the world economy next year.
"We're not assuming that Europe gets any better," Chief Executive Officer Jeff Immelt told investors on a conference call. "We're looking at '13 being kind of like '12, with the big variable being the fiscal cliff."
The fiscal cliff refers to $600 billion in spending cuts and tax increases that could take effect at the end of the year if U.S. lawmakers fail to reach an accord on shrinking the federal deficit.
GE does not expect those cuts to take effect, Immelt said.
"We're making the same assessment most people do, that somehow it gets resolved," said Immelt, who is a top adviser to President Barack Obama on jobs and the economy.
The Fairfield, Connecticut-based company was not alone in taking a guarded view of next year. Fellow manufacturer Honeywell International Inc (HON.N), which also reported revenue below analysts' expectations, said it expects revenue to grow at a low-single-digit rate in 2013, excluding the effects of acquisitions and currency fluctuations.
"This is going to be another tough year," Honeywell Chief Financial Officer Dave Anderson said in an interview.
GE shares fell 64 cents to $22.17 on the New York Stock Exchange, giving back a little of their significant gains over the past year.
At Thursday's close, GE has climbed about 41 percent over the past year, reaching levels not seen since the 2008 financial crisis and sharply outpacing the 22 percent rise of the Dow Jones industrial average .DJI.
GE PROFIT MEETS STREET VIEW
Third-quarter net income increased to $3.49 billion, or 33 cents per share, from $3.22 billion, or 22 cents per share, a year earlier.
Factoring out one-time items, the profit was 36 cents per share, meeting the analysts' average estimate, according to Thomson Reuters I/B/E/S.
Revenue rose to $36.35 billion from $35.36 billion. Wall Street expected $36.94 billion.
"The market will see this as a slight disappointment," after an upbeat late-September presentation to analysts that led some investors to expect stronger growth, said Jack DeGan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire.
"They met expectations for earnings, and they were light on revenues," he said. "If you add back forex, they beat."
GE said exchange-rate fluctuations had lowered its reported revenue by $1.1 billion in the quarter.
CFO Keith Sherin noted the U.S. dollar had been particularly weak in the third quarter of 2011, as a result of the battle in Congress over the U.S. debt ceiling, and said he expected that pressure to ease.
"If the dollar stays where it is for the fourth quarter, that'll be less of a drag," Sherin said in an interview.
ENERGY UNIT OFFSETS EUROPE
Among GE units, the energy arm had the biggest revenue growth, with a 12 percent increase in the quarter. Immelt had bulked up that business in 2010 and 2011 with an $11 billion wave of acquisitions, largely in the oil and gas sector.
Most major industrials have experienced weak demand in Europe as a result of the debt crisis there, and GE said Europe had remained "tough" in the quarter.
"The most important thing out of the earnings report is that they kept their full 2012 outlook," said Oliver Pursche, president of Gary Goldberg Financial Services in Suffern, New York. "The fourth quarter, we think, is going to be challenging for companies, especially on the revenue side. Them keeping that outlook intact is a positive."
Immelt has committed the company to buy back enough stock to lower its share count below 10 billion - its level in 2008. That year GE sold new shares to raise cash during the financial crisis.
GE said it had bought back $3 billion worth of shares so far this year. As of September 30, GE had 10.52 billion shares outstanding, down from 10.58 billion a year earlier.
GE competes with some of the world's largest and best-financed manufacturing groups, including United Technologies Corp (UTX.N), Germany's Siemens AG (SIEGn.DE) and France's Alstom SA (ALSO.PA).
(Additional reporting by Ernest Scheyder, Patricia Kranz and Chuck Mikolajczak in New York; Editing by Lisa Von Ahn, Jeffrey Benkoe and Sofina Mirza-Reid)