General Electric Shocks Investors - Forbes.com

The juxtoposition of General Electric's weak first-quarter results and lowered 2008 expectations against Immelt's sunny confidence during his shareholder webcast and in his annual letter less than a month ago is making investors that much more nervous about the future of the conglomerate.

General Electric (nyse: GE - news - people ) shares plunged 10.6%, or $3.89, to $32.86, in morning trading Friday, after the company posted a much-lower-than-expected first-quarter profit. The company also announced a diminished outlook for 2008.

Deane Dray, an analyst at Goldman Sachs, said in a note to investors Friday that the earnings miss and lowered guidance "raises credibility concerns for GE over the near-term, given that CEO Jeff Immelt had expressed confidence and reaffirmed guidance and operating targets on his March 13 retail webcast. This implies that the back half of March deteriorated significantly, which is especially unnerving."

Goldman removed GE shares from its Americas Buy list and downgraded it to "neutral" based on Friday's news.

The Fairfield, Conn.-based conglomerate's earnings fell 6.0%, to $4.3 billion, or 43 cents per share, from $4.6 billion, or 44 cents per share, a year ago. Earnings from continuing operations amounted to $4.4 billion, or 44 cents per share, down 8.0% year over year. Analysts surveyed by Thomson Financial had expected continuing operations profits of 51 cents per share, on sales of $43.68 billion. Sales were up 8.0%, to $42.2 billion, from $39.2 billion. The company did have global sales growth of 22.0%.

The company lowered its earnings guidance for all of 2008 to a range of $2.20-$2.30 per share from the previous $2.43.

Dray wrote: "disappointments were spread across the GE portfolio, with both industrial and financial businesses well below expectations. The Goldman Sachs note highlighted the "severe capital market disruptions" that pushed GE Commercial Finance earnings down 20.0% versus Goldman's expected 5.0% growth. It also said that although the company's infrastructure results were ahead of expectations, major equipment orders rising just 11% was a disappointment given Immelt’s mid-March commentary of “up strong double-digits” and Goldman's expectation of 20.0%.

Specific weakness in the consumer and industrial operations contributed a penny of the earnings miss, reflecting a soft U.S. economy, notably in appliances.

GE’s robust infrastructure business, which did have stron gdouble-digit earnings growth for the quarter, was offset by double-digit decreases at its in the consumer, industrial, healthcare and lfinancial divisions. "Our primary shortfall was a decline in financial services earnings," GE Chief Executive Jeffrey Immelt said. "We knew the first quarter was going to be challenging, but the extraordinary disruption in the capital markets in March affected our ability to complete asset sales and resulted in higher mark-to-market losses."

“We take full accountability for our performance and are making the right operational adjustments for this environment,” Immelt said. “The company’s business fundamentals are solid with strong global growth led by Infrastructure, robust orders and increasing backlog, a triple-A-rated balance sheet, healthy cash flow, and disciplined capital allocation.”

In late March, GE sold its corporate credit card business to American Express for $1.1 billion. (See: "GE Card Unit Sold To AMEX")

General Electric Shocks Investors - Forbes.com

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