GE cuts guidance, suspends stock buybacks


The downward revision of General Electric’s Q3 earnings forecast is based on the current troubles in the financial services sector and GE announced steps it is taking to maintain the capital position of GE Capital and insure the parent company’s Triple-A credit rating. As for NBC Universal, GE CEO Jeff Immelt pointed to its success this quarter with the Olympics and ratings for its cable networks.

“Our industrial business fundamentals remain very strong, with continued global strength in our core industries. Long-cycle industrial and service orders are expected to be up double digits in the third quarter,” Immelt said of GE’s mix of businesses. “In our media business, the Beijing Olympics were an unqualified success in all respects for NBCU, and cable ratings remain very positive,” he said.

But GE is not immune to the current turmoil. “While the financial services markets remain challenging and require us to adapt quickly to the rapidly changing environment, we will continue to run GE Capital to be safe and secure, while earning high margins on conservatively underwritten business,” he told Wall Street.

Because of the difficult conditions in the financial services markets – which GE says “are not likely to improve ion the near future” – the company told investors to expect Q3 earnings to be in a range of 43-48 cents per share, down from the previous guidance of 50-54 cents. Full year 2008 earnings are expected to total $19.5-21 billion, rather than $22-23 billion. That’s $1.95-2.10 per share, rather than $2.20-2.30.

To deal with the tough financial markets, GE Capital will shore up its own balance sheet buy reducing the dividend it pays the parent company to 10% of its earnings, rather than 40%. GE Capital also plans to raise no more long-term debt for the remainder of this year.

Stating that it is committed to retaining its Triple-A credit rating, GE also said it will suspend its stock buyback program. The board of directors, however, said it plans to continue the company’s quarterly dividend of 31 cents not only for the remainder of this year, but throughout 2009 as well.

RBR/TVBR observation: What we’re seeing now is that financial services companies which weren’t really involved in the mortgage business are also getting squeezed because there is a single pool of investors and capital for all sorts of investments. When one big sector goes bad, the impact is widespread. What’s not yet clear is when we can declare that the worst is over.