General Electric Company (NYSE: GE) missed by a penny. But a look behind its corporate veil reveals a company that is not getting the so-called benefits of diversification. Instead, the great performance of one of its businesses is being overwhelmed by all the other businesses which are shrinking. My concern is what happens if that one business also takes a dive.
GE net income fell 44% to $3.65 billion and its earnings per share (EPS) from continuing operations was 36 cents -- analysts had expected 37. Here's the bad news:
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GE's financial-services business, GE Capital, made a profit of $383 million -- an 88% drop while its revenues fell 18%. Its CNBC cable channel reported that it would cut 7,000 jobs and save $2 billion.
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GE's consumer and industrial business suffered an 86% earnings decline as revenue fell 17%
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GE's television and movie network. NBC Universal suffered a 6.3% earnings decline while revenue slid 2.7% as declines at local stations -- presumably suffering from weak advertising demand -- were partially offset by strong cable earnings
The good news is GE's energy-infrastructure business whose profits increased 11% and its revenues rose 21%. Unfortunately, falling oil prices, the credit crisis and the recession could take the steam out of GE's one bright spot.
When I met with GE's CFO in June 2007 I was asked what GE could do to better communicate its story to investors.I told them that I thought GE's greatest strength was its Infrastructure unit because it was benefiting from capital expenditures being made by developing countries -- including those prospering thanks to high oil prices (Middle East) and Western demand for inexpensive goods (China). When I made the comment, demand for its infrastructure was growing in these countries and GE had a competitive advantage in satisfying that demand.
I also suggested that the outstanding performance of this unit was being masked by the other parts of GE. It still is. But it may be that with oil prices having fallen and Western demand for Chinese goods declining, that last pilot light of hope for GE investors will be extinguished by the frigid condition of its GE Capital unit.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns GE shares.
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Reader Comments (Page 1 of 1)
1-23-2009 @ 1:16PM
Ward Welvaert said...
Listening to the conference call I had to think the GE bigwigs are stuck in the 1990s.
1-23-2009 @ 1:21PM
Ward Welvaert said...
BTW - my thoughts on GE's corporate culture.
http://lifeinperu.com/2009/01/23/ge-releases-4q-earnings/
GE was such a leader in business in the late 20th century, but the corporate culture in the 1990s set the stage for the crises today.