BOSTON (Reuters) - General Electric Co reported a 44 percent drop in quarterly profit on weakness at GE Capital and its lighting and appliance units, and warned that 2009 would be “extremely difficult.”
Its shares tumbled nearly 11 percent to their lowest point since early 1996 as investors continued to worry about the U.S. conglomerate’s ability to maintain its dividend.
GE Capital — the company’s Achilles heel for the past year — remained the biggest drag on its results, with profit tumbling 67 percent. GE’s energy infrastructure unit, which makes electric turbines and windmills, was the highlight, recording 11 percent profit growth.
Chief Executive Jeff Immelt said on Friday the result — which met Wall Street’s reduced expectations — reflected brutal economic conditions.
“We’re planning for a really tough environment,” Immelt told analysts on a conference call. “The recession is tough, the financial services crisis is worse.”
Investors have become increasingly concerned over the past month that the world’s largest maker of jet engines may have to sacrifice its $1.24 per share annual dividend.
Analysts also are asking whether it could lose its coveted top-tier credit rating, after Standard & Poor’s lowered its outlook to “negative” in December.
“GE is not fully out of the woods and macro uncertainties continue to point to continued risk for the dividend and AAA-rating,” said Goldman Sachs analyst Terry Darling.
Immelt, 52, defended the dividend, calling it “a good return to investors in this moment of uncertainty. But we’re not straining in order to pay it ... We’ve got lots of cash.”
GE shares closed down $1.45 to $12.03 on the New York Stock Exchange, making it one of the heaviest drags on the Dow Jones industrial average. The Dow was off more than 1 percent earlier, before closing down 0.56 percent.
Over the past year, GE shares have tumbled about 60 percent, sharply outpacing the 32 percent fall of the Dow.
It trades at 6.9 times forecast 2009 earnings, a sharp discount to the Dow’s forward price-to-earnings ratio of 11.3.
The Fairfield, Connecticut-based company said fourth-quarter net income fell to $3.72 billion, or 35 cents per diluted share, from $6.7 billion, or 66 cents, a year earlier, as the U.S. conglomerate and economic bellwether closed out one of the toughest years in its 117-year history.
Factoring out one-time items, results met Wall Street’s expectations, according to Reuters Estimates.
Revenue fell 4.8 percent to $46.21 billion.
In early December, the company sharply lowered the high end of its fourth-quarter profit forecast.
“While GE clearly is being impacted by recession and its financial business is being impacted by the financial meltdown, they are navigating it,” said David Katz, chief investment officer, Matrix Asset Advisors.
The company, the only original member to remain in the Dow, stood by its 2009 outlook.
GE has ceased providing numeric per-share profit targets, instead opting to spell out a “framework” for how its individual businesses will perform. That calls for profit at its infrastructure units and its NBC Universal unit to be flat to up 5 percent for 2009, with GE Capital profit down about 40 percent.
Company officials on a conference call said they raised their forecast credit losses at GE Capital to $10 billion for the year, up from a previous forecast of $9 billion.
They also noted that infrastructure equipment orders — an indicator of future sales — declined 11 percent in the quarter.
Chief Financial Officer Keith Sherin in an interview expressed confidence in the company’s order backlog.
“In a macro sense, for the total company, we’ve done a very rigorous job of making sure that what we put in our plan we thought, even with the economic problems that people have and even with the financial liquidity problems, that people are going to take those orders,” Sherin said.
Across the industrial sector, companies are braced for a rough year. United Technologies Corp, the world’s largest maker of elevators and air conditioners, on Wednesday warned that it expected a particularly brutal first half.
GE and United Tech look to the Obama administration’s planned stimulus as a potential boost, though investors expect no effect until late this year at the earliest.
Reporting by Scott Malone, additional reporting by Rebekah Curtis, Dominic Lau and Atul Prakash in London and Christoph Steitz in Frankfurt, Nick Zieminski and Leah Schnurr in New York; Editing by Derek Caney and Carol Bishopric