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

A lot of the attention over the weakness in GE's (NYSE:GE) stock has been due to the poor performance in its industrial unit and the cyclical nature of earnings at its NBC Universal entertainment business. But, like Wall Street firms, the real risks for the conglomerate's numbers could be in its financial and money divisions.

According to The Wall Street Journal, "Investors are worried about the value of assets held by GE Capital, which accounts for most of its borrowing and more than one-third of its profit."

GE shares fell to a five-and-a-half year low yesterday, bottoming at $24.60.

But, GE is an exceedingly complex company and focusing on its financial unit is only part of the story. The real engine of the firm's growth has been its infrastructure unit. This includes GE's aviation, health-care, energy, and natural resources operations. The current risk to those businesses is substantial.

GE has made a point of telling investors that the rapid improvement in its infrastructure earnings, especially due to growth in Asia, will help drive double digit revenue growth. The current damage to the world's financial markets and slowing economies in the West and Asia could undercut GE's forecasts.

GE's stock could go lower because of risks in all its units. The firm's financial businesses are only part of the picture.

Douglas A. McIntyre is an editor at 247wallst.com.

MAJOR PAPERS:

• Steven Spielberg and his DreamWorks Animation SKG Inc (NYSE: DWA) partners are close to signing a deal with India's Reliance ADA Group for between $500M and $600M that would provide financing to the company as it prepares to leave Viacom Inc's (NYSE: VIA) Paramount Pictures this year, the Wall Street Journal reported. DreamWorks will seek to obtain an additional $500M in debt financing to make about six new films a year.
• The Wall Street Journal also reported that at an investor update yesterday, The Hershey Company (NYSE: HSY) CEO David West said the chocolate-bar maker would boost spending on marketing about 20% this year and next, and slightly increased the company's long-term annual sales targets. West offered little detail on how Hershey will address its reliance on the U.S. market for revenue.

OTHER PAPERS:

• The Economic Times reported that India's Maneesh Pharmaceuticals, a mid-sized company, bought a 51% stake in U.S.-based Synovics Pharmaceuticals Inc (OTC: SYVC). The terms of the deal were not disclosed.
• The Economic Times also reported that General Electric Company's (NYSE: GE) GE Money Financial Services, which was seeking a parter for its personal and home loan portfolios, may have called off the process after it was unable to get the right valuation.
• Bob Nardelli, the chairman and CEO of Chrysler LLC, sent a memo to employees warning them of worsening U.S. sales, the Detroit News reported. The e-mail did not indicate the auto maker would look to soon further cut production or lay off staff, a person familiar with the matter said.

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.

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?

I estimate that General Electric Company's (NYSE: GE) GE Money segment is worth between $29.6 billion and $54.7 billion.

GE Money, which constituted 13.3%, 13.1%, and 11.7% of GE consolidated revenues in 2006, 2005, and 2004, respectively, provides financial services to consumers and retailers in 50 countries. GE Money offers private-label credit cards; personal loans; bank cards; auto loans and leases; mortgages; corporate travel and purchasing cards; debt consolidation; home equity loans; deposit and other savings products, and credit insurance.

GE Money enjoyed 15% revenue growth and and 5% operating profit growth in the first half. Unfortunately, it also had a subprime mortgage business -- $3.7 billion worth of which GE sold at a loss. GE Money continues to hold $1.1 billion worth of subprime mortgages. To me the biggest concern about GE Money is that comparable companies -- see below -- have low P/E ratios -- around 10. Thus this business could be dragging down GE's corporate valuation.

Assuming that GE Money generates net income of $3 billion in 2007, here are the range of valuations based on the Price/Earnings ratios of the following peer companies:

• Bank of America Corp. (NYSE: BAC) P/E: 9.9. $29.6 billion
• Capital One Financial Corp. (NYSE: COF) P/E: 11.3. $33.8 billion
• American Express Co. (NYSE: AXP) P/E: 18.3. $54.7 billion

Next: Breaking Down GE Healthcare

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He owns General Electric shares and has no financial interest in the other securities mentioned in this post.

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.

Next Tuesday I am scheduled to meet with General Electric Co. (NYSE: GE) Chief Financial Officer Keith Sherin to discuss GE's performance and prospects. This meeting came at the company's initiation.

As a GE shareholder I have not been thrilled with the performance of the stock. Since September 7, 2001 when current CEO Jeff Immelt took over, the stock has risen 3% from $39.60, compared to a 40% increase in the S&P 500. Moreover, on the basis of its Price/Earnings to Growth (PEG) ratio of 1.5 -- based on a P/E of 19.5 and earnings forecast to grow 13% to $2.50 in 2008 -- GE looks somewhat overvalued to me.

So here are some questions I plan to ask:

• Since the current GE CEO took over, GE stock is up 3%, compared to a 40% increase in the S&P 500. Why has GE stock underperformed this average?
• GE stock has risen 23% in the last year, however, it trades at a PEG of 1.5 which makes it a bit expensive. Why should investors buy GE stock now?
• Since the Healthcare, Industrial and NBC Universal segments all saw revenues fall in the first half with relatively weak profit performance, why doesn't GE sell these businesses and invest the proceeds to increase its market share in the more financially successful Infrastructure and Commercial Finance units?
• If GE chooses to stay in Healthcare how will it offset the negative impact of the federal government's decision to cut reimbursements to nonhospital imaging centers?
• Under Jack Welch, GE's philosophy was to only be in businesses in which it could be #1 or #2. Recently NBC was ranked the 4th most watched network. Will GE sell NBC? If not, why is GE keeping NBC? How does NBC's coordination with other GE divisions increase GE's overall revenues or lower its costs?
• How vulnerable is the GE Money unit to an increase in consumer loan defaults? Is GE Money likely to experience accelerated revenue and profit growth in 2008 or slower growth? Why?
• What impact would a 10% decline in the dollar have on GE's Earnings Per Share (EPS)?
• What other external factors -- such as an increase in interest rates or a rise in energy prices -- represent the biggest risks to GE's EPS? How do you quantify those risks?

Please let me know which ones you'd like to add to the list.

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He owns General Electric stock.

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.