GE profit dips 6% in worst shock to US industry from credit crisis

General Electric Co (GE) posted an unexpected 6 per cent drop in quarterly profit today, the biggest shock yet to US industry from the credit crisis and the latest sign that the US economy may be in a recession. The second-largest US company by market capitalisation said its profit fell about 20 per cent at its financial services arms, which accounted for more than a third of GE’s total revenue in the quarter. But weakness in health care and industrial divisions also weighed on results. The news sent GE shares down more than 11 per cent in early trade on the New York Stock Exchange (NYSE), the sharpest drop in two decades, dragging down global markets. “It’s confirmation that we’re in a recession,” said Jerome Heppelmann, portfolio manager at Liberty Ridge Capital in Berwyn, Pennsylvania.

The company said it has also lowered its earnings forecast for the year, reflecting a slower economy and challenging capital markets. “The financial services environment was very difficult and became even more difficult late in the quarter,” said chairman and chief executive Jeff Immelt in a conference call with analysts and investors. He said the financial services environment deteriorated sharply in the wake of the near collapse of Bear Stearns Co last month. “We experienced an extraordinary disruption in our ability to complete asset sales and incurred marks of impairments and this was something that we clearly didn’t see until the end of the quarter,” Immelt said, adding that financial services was responsible for 5 cents of the firm’s 7-cent-per-share miss of Wall Street expectations.

“These results confirm that the slowdown is widespread and beginning to impact capex and longer-cycle businesses,” said Stephen Surpless, senior analyst at Cantor Fitzgerald in London. “While the credit crisis might be nearer to the end than the beginning, the impact on the real US economy is taking place and is unlikely to abate in 2008,” he added. GE reported a profit of $4.3 billion, or 43 cents per diluted share, compared with $4.57 billion, or 44 cents, a year earlier. Revenue rose 7.8 percent to $42.24 billion.