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Friday, April 11, 2008

GE Misses and Consumer Confidence at 26-Year Low

General Electric Company (GE Charts) and The University of Michigan's consumer sentiment index woke the markets with a shocking one-two punch this morning. GE's stock fell over 11% in the first hour of trading while consumer confidence fell to the lowest level since March 1982!

GE shocked the market by missing its earnings estimate in a big way this AM (Press Release).

  • GE revenue was up 8% to $42.24 billion from $39.20 billion, with global revenue up 22%

  • Net income fell 6% to $4.3 billion, or 43¢ per share, from $4.57 billion, or 44¢ per share, a year ago. Analysts had expected 51¢ a share and GE had forecast profit of 50 to 53¢ per share.

  • GE lowered earnings per share guidance for all of 2008 to $2.20 - 2.30, up 0 to 5% over 2007. Analysts were expecting GE would earn $2.43 for all of 2008.

Click graph courtesy of Bigcharts.com to view full sized

Jeff Immelt in the earnings conference call said:

  • “Our primary shortfall was a decline in financial services earnings. 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 and impairments."

  • "We are lowering our full-year EPS guidance to $2.20-2.30 from continuing operations reflecting growth of 0-5%. As a part of this guidance, we expect our industrial earnings to grow 10-15% and financial services earnings to decline 5-10%... Consistent with this range, our second quarter 2008 guidance is $.53-.55 EPS.”

Prior to today, GE was known for meeting its estimates every quarter.

Good news was total orders rose 8% in the period and that major equipment backlog jumped 41%, so it's not as if business just ground to a halt. Business outside the US was growing strong but that could slow if the recession in the US spreads to other economies.

Click graph courtesy of Stockcharts.com to view full sized

The University of Michigan's U.S. consumer sentiment index fell to 63.2 in April from 69.5 March. This is the lowest level since March 1982.

Click graph courtesy of Martin Capital to view full sized


In January we published "ECRI Says There Is A Window of Opportunity for the US Economy" where readers were asked to envision the economy as a large Roman stone column that had just started to topple. ECRI postulated that "prompt stimulus to boost consumer spending" could prevent the column from tipping over into a recession. With today's news from GE and the University of Michigan, we've heard two loud THUDS as two columns hit the dust.

Disclaimer. I personally own and recommended GE in "Kirk Lindstrom's Investment Newsletter" where I may buy and sell around a core position.

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