GE earns record profit in quarter

$2.82 billion is up 15 percent from same period in '98


July 09, 1999|By BLOOMBERG NEWS

FAIRFIELD, Conn. -- General Electric Co. said yesterday that it earned $2.82 billion in the second quarter, the highest quarterly profit ever reported by the 107-year-old maker of light bulbs, jet engines and appliances.

GE, the second-largest U.S. company by market value, said low costs and increased sales of service contracts helped net income rise 15 percent, from $2.45 billion a year earlier. Per-share profit was 85 cents, compared with 74 cents for the same period last year. Revenue rose 9.2 percent, to $27.4 billion from $25.1 billion.

The profit record was set even though GE's sales were $1.2 billion below the peak reached in the fourth quarter last year.

The results reflect GE's ability to sell long-term service contracts, which help wring more profit from lower-margin industrial products. A productivity push at GE also has kept costs from rising as much as sales.

"Their margins are fantastic. It's very impressive," said Mike Holton, an analyst at T. Rowe Price Associates Inc., which owned more than 9 million GE shares at the end of March.

GE is the world's No. 1 maker of jet engines and medical diagnostic imaging machines. It owns GE Capital, the world's biggest nonbank finance company, and the NBC television network.

GE's operating-profit margin in the second quarter rose to 19.3 percent, a quarterly record for the company, up from 18.1 percent. Operating margin measures sales less the cost of goods sold.

The profit surge didn't prevent its stock from falling. The shares dropped 93.5 cents yesterday to close at $117.0625.

GE's market value of $382.8 billion is second only to that of Microsoft Corp., which has a value of $472.4 billion.

GE's market value has risen more than $300 billion during Chairman John F. Welch Jr.'s tenure. Welch said yesterday that the company will deliver "another year of record performance in 1999."

The company's expansion into services has helped bolster its top positions in industries such as medical scanners and aircraft engines, said Russell Leavitt, an analyst at Banc of America Securities.

The second-quarter earnings also got a boost from higher-than-expected sales of plastics and other so-called cyclical goods, demand for which ebbs and flows with economic swings.

Operating profit at Technical Services and Products, which includes the company's medical systems and information systems units, rose 25 percent to $328 million as revenue climbed 31 percent to $1.63 billion.

Operating profit at GE Capital, the world's largest nonbank finance company, rose 17 percent to $1.09 billion as revenue rose 14 percent to $13.4 billion from $11.8 billion as the company continued to expand through acquisitions in Asia, particularly Japan.

NBC's operating profit rose 15 percent to $544 million on a 9 percent revenue rise to $1.78 billion.

The Power Systems division, the world's top provider of power generation equipment and services, rose 34 percent to $499 million as revenue climbed 7 percent to $2.3 billion amid a booming U.S. energy market and utility deregulation. The division's backlog of almost $6 billion in the first half of 1999 is up 60 percent.

Profit at GE's aircraft engine business, the world's largest, rose 20 percent to $512 million as revenue rose less than 1 percent to $2.6 billion.

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