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Investors uneasy with GE despite strong earnings growth

January 20, 2007|From the Associated Press

General Electric Co. said Friday that its fourth-quarter profit more than doubled as its NBC television network showed signs of a turnaround and its global sales of gas turbines, healthcare equipment, financial services and aircraft engines grew strongly.

GE also said it was restating financial results for 2001 through the first three quarters of 2006 to adjust accounting for interest rate swaps in part of its financial services commercial paper program.

Shares of Fairfield, Conn.-based GE fell $1.05 to $36.95.

Matt Collins, an industrial analyst with Edward Jones, attributed Friday's 2.8% stock price decline to concerns over GE's second restatement in two years and to the fact that GE would not have met expectations without a tax benefit from the sale of a business. Investors also were trying to evaluate a spree of acquisitions this month by the company, he said.

"Long term we think they're setting up the right business portfolio," Collins said. "If the earnings quality issues disappear, we think the stock could outperform."

The restatement, which reduced reported earnings by a net of $343 million, is based on a decision by the Securities and Exchange Commission that GE's commercial paper hedging program failed to meet certain technical requirements. The change will have a slightly positive effect on earnings over the next 10 years, GE said.

GE also said it expected earnings per share from continuing operations to rise 10% to 12% to a range of $2.18 to $2.23 for 2007 and 8% to 13% in the current first quarter. Net income for the three months ended Dec. 30 totaled $6.58 billion, or 64 cents a share, up from $3.16 billion, or 30 cents, a year earlier, when GE took a $2.7-billion charge, net of taxes, for discontinued operations.

Earnings from continuing operations rose by a smaller 12% to 64 cents a share, in line with analysts' consensus estimate.

"NBC Universal's turnaround is advancing, and industrial had a good year in spite of continued commodity inflation and competitive challenges at plastics," Chairman and Chief Executive Jeffrey Immelt said.

The company said it was considering a divestiture of the plastics unit, which has an estimated value of as much as $10 billion.

The profit report came after a buying spree in which GE announced $15 billion worth of acquisitions this month in healthcare, aviation and petroleum.

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