GE slashes profit outlook amid finance troubles

Boston: General Electric Co slashed its profit forecast on Thursday, warning that the turmoil in global credit markets could drive its earnings down as much as 12 per cent.

The news confirmed Wall Street's fears that the credit crunch would hammer GE's finance arm. Investors had sold the stock heavily over the past two weeks, sending its shares to five-year lows and cutting its market value by 33 per cent for the year.

The shares fell 5 per cent in early trading, but remained above last week's low of $22.16 (Dh81.33).

The news weighed on US stock futures as investors feared it could be start of a surge of profit warnings.

"I expect that in this pre-earnings season we're going to see a lot of these sorts of announcements and I think the market is aware of that," said Peter Cardillo, chief market economist at Avalon Partners in New York.

"The credit crunch has really been severe and it's taken its toll on the economy and corporate America," he added. "I think we're a headed for a very sour third-quarter earnings season."

"This is confirmation that Wall Street's concerns were well grounded," said Brian Langenberg, principal at Langenberg & Co in New York.

GE's broad breadth of businesses - from manufacturing jet engines to running the NBC television network to corporate lending - is intended to make the conglomerate something of a bulletproof performer, able to exploit its sectoral and global diversification to ride out any downturn.

Volatility

But the volatility in the financial services industry has taken a heavy toll on its GE Capital unit, overshadowing strong growth at the company's infrastructure businesses this year.

When GE stunned investors in April with an unexpected 6 per cent drop in quarterly profit, it pointed to the lockup in the credit markets following the collapse of Bear Stearns.

The bankruptcy of Leh-man Brothers Holdings, the $85 billion emergency US loan to American International Group and general financial market troubles had stoked investor fears they were in for more bad news from GE.

"Given the recent dramatic developments in the financial markets, we have made some tough decisions to further reduce risk and strengthen our balance sheet while maintaining our dividend," Chief Executive Jeff Immelt said in a statement.

"We have suspended the stock buyback to reduce GE Capital leverage, while still being able to pursue opportunistic acquisitions," he said.

"We remain fully committed to the Triple-A credit rating."

Buy back

The company had been authorised to buy back $15 billion of its shares, according to its most recent quarterly filing with the US Securities and Exchange Commission. As of Wed-nesday's close, its market value stood at $248.2 billion.

Standard & Poor's affirmed the company's credit ratings shortly after the announcement.

GE said it would earn between 43 cents and 48 cents per share in the third quarter, down from a previous outlook of 50 cents to 54 cents.

For the full year, it forecast earnings of $19.5 billion to $21 billion, or $1.95 to $2.10 per share, compared with its previous expectations of $22 billion to $23 billion, or $2.20 to $2.30 per share.

The Fairfield, Connecticut-based company said it expects its finance arms to remain profitable in third quarter and year.

GE shares were down 5.1 per cent at $23.33 in trading before the market opened.