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:

• 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.
  
• GE's consumer and industrial business suffered an 86% earnings decline as revenue fell 17%
• 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

Bloomberg News reports that General Electric Co. (NYSE: GE) has cut the number of its business units from six to four. This change in organization structure should trim its overhead. But it could make it more difficult for investors to compare GE's performance before the reorganization to how it's doing after the change in structure.

The key unresolved question is whether the new structure will boost GE's revenue and profit growth. Bloomberg reports that the four new units will be GE Technology Infrastructure, GE Energy Infrastructure, GE Capital and NBC Universal. GE formerly had six units -- Reuters reports that GE Health Care, which was one of the six former divisions, now falls under the new Technology Infrastructure unit. GE's $13 billion consumer and industrial businesses, which include washing machines and lighting, is not part of the new structure -- in 2009 GE wants to spin those businesses off to shareholders.

Bloomberg reports that in May, GE CEO Jeff Immelt said that he intends to change GE's product mix to about 60% non-financial by 2010 -- far more than it is today. In 2007, GE's finance-related businesses accounted for 44% of net income and 53% of profit from continuing operations. It is not clear whether the new organization structure will help revive GE's revenue and profit growth.

CNNMoney reports that General Electric Co. (NYSE: GE) is selling its appliance business. Goldman Sachs Group (NYSE: GS) is running the auction for this maker of refrigerators, microwaves and dishwashers and expects to receive between $5 billion and $8 billion for this $7 billion division of GE's $17.7 billion (2007 revenues) Industrial business unit.

I have been advocating that GE shed its ancillary businesses and this is one that makes sense to sell. I have taught several cases on the appliance industry and one of them highlights the many problems that GE's Appliance business suffered from in the 1990s thanks to the growing bargaining power of mass merchandisers, significant competition from Chinese manufacturers, and some internally inflicted wounds.

If GE Appliances was valued at the same Price/Sales ratio as Whirlpool (NYSE: WHR) -- 0.3 -- it would fetch $3.5 billion. The appliance industry average price/sales ratio is 0.7 -- which would yield GE $4.9 billion. So it looks like GE believes its appliance business is worth well more than the average appliance industry competitor. I applaud the idea of selling GE Appliances but the real gem of GE is its infrastructure business which is capitalizing on the growth of developing countries like China and India.

After posting a disastrous first quarter. General Electric Company (NYSE: GE) Chief Executive Jeffrey Immelt is resisting calls from Wall Street to break up the conglomerate.

"There are more reviews and intensity, but no real change to the strategy,'' Immelt said told Bloomberg News. ``The strategy remains intact.''

Really? Shares of the Fairfield, Conn.-based company have slumped about 13% this year. The stock had its biggest fall in 20 years after reporting disappointing results. Immelt, though, either is oblivious or cool under fire. I am not sure which.

General Electric (NYSE: GE) not only disappointed Wall Street investors this past Friday with its horrible results, but shocked investors as CEO Jeffrey Immelt gave the "all is alright" signal in mid-March. He should resign as he has had nearly 7 years to grow this once great company.

GE should also bite the bullet and spin off several segments into separately traded companies. I wrote about this extensively last year for AOL, but now the rationale is abundantly clear. This company--a major conglomerate--cannot deliver decent shareholder returns. Immelt took the reigns of GE on September 7,2001 when the stock was at $40. Nearly 7 years later the shares are at $32 and barely holding on. I find it amusing that some "value" investors think GE is interesting at this level. These were the same investors that found GE interesting and a value-play at $38 last year.

The problem with GE is not that it's too big: the problem is it is too complex. The largest industrial company in the world now is Exxon Mobil (NYSE: XOM) with expected revenues this year of $550 billion. This company however is strictly in the energy sector--it's measurable and quantifiable. GE is a mish-mash of businesses, from light bulbs to jet engines to appliances to consumer loans, whereby some segments are doing well and others horribly. How does any analyst assign a proper PE ratio expectation?

One segment, the infrastructure division grew its revenues by an admirable 23% this past March quarter and its profits by 17%. With this kind of growth and visibility into the next 18-24 months on revenues because of contractual commitments, this division alone could command a 25 + PE ratio. GE as a whole is now trading at 14 X 2008 EPS estimates of $2.20-2.30.

The GE Financial segment was woeful and provided the negative surprise. This segment on its own would trade at a PE ratio of between 9-11 times. The NBC-Universal division showed only 3% year-over-year growth, but cash flowed very well. This segment should command a 15-17 PE multiple.

CNNMoney reports that General Electric Company (NYSE: GE) missed earnings expectations by a mile. Its net income fell 12% to $4.4 billion, or 44 cents per share, seven cents less than what Thomson Financial's polling of analysts had estimated.

In February I analyzed GE's breakup value and concluded that the stock was probably a bit overvalued. The big problem with today's earnings announcement was GE's financial services unit. Like Wall Street banks, GE suffered from "extraordinary disruption in the capital markets in March [which] affected our ability to complete asset sales and resulted in higher mark-to-market losses and impairments."

But that's not all. GE missed on revenues and lowered its guidance. Sales rose 8% to $42.2 billion, $1.5 billion below analysts' forecast of $43.7 billion. GE lowered its full year guidance to between $2.20 and $2.30 per share, reflecting flat to 5% growth. GE is down 11% in pre-market.

Since its current CEO, Jeff Immelt took over in September 2001, GE stock has fallen 20% from $41 to $33. Remind me again of why the "great" Jack Welch chose Immelt to succeed him.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns GE shares.

General Electric Company (NYSE: GE)'s Industrial segment is worth between $13.1 billion and $16.1 billion down 35.1% at the low end since July when I estimated it was worth $20.2 billion and $21.7 billion.

GE Industrial sells products including consumer appliances, industrial equipment and plastics, and related services. It also provides asset management services for the transportation industry. Industrial revenues were about the same in 2007 compared with 2006 as lower volume ($0.5 billion) was offset by the effects of the weaker U.S. dollar ($0.3 billion) and higher prices ($0.2 billion).

Based on GE Industrial profit of $1.41 billion, here are the range of valuations based on the Price/Earnings ratios of the following peer companies -- which declined substantially since last July:

• Whirlpool Corp. (NYSE: WHR) P/E: 11.4 (July: 16.2): $13.1 billion
• Electrolux AB (ADR) (OTC: ELUXY) P/E: 9.3. (July: 15.2): $16.1 billion

Last July I met with General Electric Company (NYSE: GE) CFO Keith Sherin to discuss GE's performance and prospects. After an extensive analysis, I concluded that GE was not grossly undervalued in the stock market relative to my estimate of the breakup value of its component parts. Seven months later, I've reached a different conclusion -- if one were to break up GE now, its pieces would fetch less than its current market value.

In the last seven months, GE's market capitalization has fallen 15% from $399 billion to $339 billion. But GE made more money than I thought it would. When I estimated how much profit its business units would earn for 2007 in July, I had half a year's segment profit and I guessed that the year's total would be $21.6 billion. But the actual 2007 segment profit total was $24.1 billion -- which I calculated by assuming each segment paid a 17% tax rate on its profit.

Meanwhile the market has decided to assign lower values to GE's various businesses. I calculated that the weighted average Price/Earnings (PE) ratio of GE's business last July was 19.92 and now it's down to 17.62. This leads me to a range of breakup values for GE which are between 11.1% and 1.5% less below GE's current market capitalization. At the high end, I estimated that GE's businesses could be worth $334 billion and at the low end -- $301.3 billion. How did I get there?

After my meeting with General Electric Co. (NYSE: GE) CFO Keith Sherin last week, I tried to figure out how much GE's NBC Universal might be worth in the open market. Such analysis is relevant now for two reasons:

• GE's stock price has fallen 2% under its current CEO. When Jeff Immelt took over as CEO on September 7, 2001, GE was trading, 2%, or 87 cents, above today's $38.79. During that same period, the S&P 500 rose 40%. In predecessor Jack Welch's first 5.9 years as CEO, GE's stock rose 221% from a split-adjusted $1.40 in April 1981 to $4.50 in March 1987.
• A respected analyst recently advocated a breakup to get GE stock moving. The New York Times [registration required] recently reported that Citigroup Inc.'s (NYSE: C) John Sprague issued a report titled "Partial Break-Up Could Break Deadlock on the Stock."

Is GE worth more broken up in pieces and sold or kept intact? To answer this, let me explain how a conglomerate like GE can raise its stock price. My theory is that GE management has two levers: the P/Es of the industries in which GE competes and the earnings growth rates of its businesses in those industries. To increase GE's market value, its management should prune GE's portfolio of businesses with the lowest P/Es and slow earnings growth -- replacing them with high P/E, fast earnings growth businesses which it can run successfully (if that can be done without overpaying). Nevertheless, as noted here, I am not sure whether a conglomerate is a good corporate strategy for GE because it may be leading the stock market to discount its earnings by 4%.

I address whether breaking up GE will increase its stock price in Breaking Down GE, a seven-post series.

General Electric Co. (NYSE: GE) posted an in-line first quarter. As expected, GE Infrastructure did well and NBC Universal did poorly. The company also was hurt by the meltdown in subprime mortgages.

8:30-- Introductions

Jeff Immelt:

The broad strength of GE, lead by. If you at our inf business, we are in the very early phase where we have high visibility, broad technology, increasing backlogs. We are in the first inning of a nine inning game in Inf. What you saw in this quarter is repeatably.

Had a couple of speed bumps. WMC. health care. Despite those bumps , we delivered good quality earnings. We are a safe..going to deliver 10 to .12. The environment that we see today. We think the global markets are good, capex is leveling, Housing is a "challenge."

Emerging markets are very strong, Inf investments continue. Our env programs. The margin environment is as expected. Driving pricing in long-cycle business.We're well positioned globally. our pricing is ahead of inflation.

We've got a st. The economy is what we expected. We feel really good on how the company is position.

John Rice-Infrastructure.

We saw strength in all of our business. took orders for 33 gas turbines, many of them were international. Oil and gas business had strong orders. "We're starting to see more action in the United States in terms of inquiries>" All in all the business is very strong.

Keith Sherin, CFO

The headline .23.6 bln in orders.

The absolute level of orders continues to be extremely strong. The future outlook continues to be very strong.

The transportation outlook for the year is fantastic. Backlog is up 30 percent from a year ago. When we look for. The current outlook is 20 percent increase for orders of major equipment. Total orders are expected to be up 15 percent in the second quarter.

General Electric Co. (NYSE:GE) today reported first quarter results that matched Wall Street expectations. Investors pushed up the shares in pre-market trading.

Net income was $4.5 billion, or 44 cents per share, compared with $4.4 billion, or 42 cents, a year earlier. Revenue jumped 4 percent to $38.6 billion. Analysts expected profit of 44 cents on revenue of $39.8 billion, according to Thomson Financial.

GE's Infrastructure, Commercial Finance and Money units each posted double-digit revenue gains while GE Healthcare was little changed and NBC Universal and Industrial declined. All of the divisions showed gains in operating profit except Industrial.

Other highlights include a 32% gain in major equipment backlog, an 11% gain in services order and a 22% increase in financial services assets. Cash flow from operations rose 10 percent to $7.4 billion. The company was hurt by the meltdown in subprime mortgages at its WFC Mortgage business.

As expected, GE Infrastructure did well. Its revenue rose 18 percent to $11.9 billion, while operating jumped 28 percent to $2.2 billion. Revenue at Commercial Finance jumped 15% to $6.28 billion and 14 percent to $5.28 billion in GE Money. Commercial Finance profit rose 21 percent to $1.42 billion and GE Money profit gained 2 percent to $851 million.

Industrial revenue fell 9 percent to $7.4 billion and profit slumped 20 percent to $480 million. NBC Universal continued to lag with revenue plunging $3.48 billion as operating profit rose 6 percent to $691 million.

Investors, though, will reserve judgment on GE until this morning's earnings conference call.

An American Airlines 767 had a GE jet engine explode during testing two weeks ago in Los Angeles. The explosion caught the plane on fire and tossed chunks some 3,000 feet away. The jet engine had fatigue, which caused the explosion and led to chunks ripping through the airplane's body. Thankfully, there were no injuries to the testers aboard the plane.

However the National Transportation Safety Board is investigating exactly what happened, and it may lead to the NTSB calling for more frequent inspections of GE jet engines.

This tarnishes the engines and GE's reputation. However, more frequent inspection will hopefully lead to any problems getting caught ahead of time, without something like this occurring on a plane full of passengers in the sky. That certainly would have more of a negative impact for all involved.

[picture credit: wikipedia]