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GE Dives on Flat Revenue

Earnings: Sales news sends company's shares down 9% and helps spark a market sell-off.

April 12, 2002|JAMES F. PELTZ | TIMES STAFF WRITER

General Electric Co.'s stock tumbled 9% on Thursday after the conglomerate, under fire to disclose more detailed financial data, reported a problem that's plain as day: Its sales aren't growing.

GE disappointed investors--and helped drag down the entire stock market--by reporting first-quarter revenue that was nearly unchanged from a year earlier at $30.5 billion, further indicating that the U.S. economic rebound has a long way to go. The company is considered a bellwether of the economy because its segments include appliances, energy power systems, medical equipment, financial services and the NBC television network.

Moreover, GE's report came on top of a gloomy outlook posted earlier this week by technology giant IBM Corp., also known for its historically steady growth. IBM said its first-quarter revenue and profit would fall well short of forecasts.

"The business environment is still very tough," Keith Sherin, GE's chief financial officer, said during the company's first-ever earnings conference call available to the public.

GE held the call, and provided more detail in its financial statements, to assuage critics who complained that GE hasn't been forthcoming enough about its results. In the aftermath of the Enron Corp. and Andersen accounting scandals, even GE--despite its long history of strong earnings and revenue growth under former Chief Executive Jack Welch Jr.--has been criticized for lacking financial disclosure.

So GE's quarterly results under new CEO Jeffrey Immelt, while always newsworthy, turned into a mini-event Thursday. But the show-stopper was the subsequent drop in GE's stock, one of the most widely held issues. GE fell $3.45 to $33.75 a share on the New York Stock Exchange, and 79 million shares changed hands. The decline wiped out $33 billion of investors' wealth, but GE's total market value is still the nation's highest at $332 billion.

GE's profit--the normal focus of the company's quarterly results--was about as expected although the Fairfield, Conn.-based behemoth did post a rare earnings decline, its first in seven years. GE said profit dipped 3% from a year earlier after it adapted to required changes in financial-reporting standards, which resulted in more than $1 billion in noncash charges against earnings. Excluding those changes and other one-time items, GE's net income rose 17% to $3.52billion, or 35 cents a share, from a year earlier--matching forecasts of analysts surveyed by Thomson Financial/First Call.

With its renowned attention to cost controls, innovation and acquisitions, GE managed the profit despite having no revenue increase. And "it's the revenue side that people are spooked about," said Adam Friedman, manager of the Armada Large Cap Value fund.

GE's situation would have been even worse except for its power-systems group, which has been thriving with record demand from the energy industry for GE's power-generation turbines. But that business is slowing, too, putting pressure on GE's other groups to pick up the slack.

"It's going to make double-digit earnings growth tougher to come by in the next couple years," said William Fiala, analyst at the brokerage firm Edward Jones & Co.

GE's huge financial-services arm, GE Capital, also reported a 6% drop in revenue, in good part because of lower market interest rates. GE Capital, in fact, has been the main target of critics such as Bill Gross, who runs the nation's largest bond fund at Newport Beach-based Pacific Investment Management Co.

Gross complained last month that GE was carrying too much short-term debt and wasn't disclosing enough details about that debt and other financial matters.

Gross told Bloomberg TV that while he did not listen to the conference call, his staff did and their comments suggest GE is "making progress" in its disclosure. But he said the push for more information "isn't a GE thing, it's a corporate America thing," and he "would continue to urge that all corporations issue forth more disclosure."

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Times wire services contributed to this report.

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Fear Factor on Wall St.

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