GE net income falls for first time in 7 years

2.7% drop in 1Q profit is blamed on decline in value of acquired assets

April 12, 2002|By BLOOMBERG NEWS

FAIRFIELD, Conn. - General Electric Co.'s net income fell for the first time in more than seven years because of a decline in the value of some of its acquisitions. Sales were little changed.

First-quarter profit dropped 2.7 percent to $2.5 billion, or 25 cents a share. Excluding the accounting change, earnings increased 17 percent, GE said. Sales rose less than 1 percent to $30.52 billion after declining the final nine months of last year.

GE shares fell nearly 9.3 percent yesterday because the sales were less than the company's forecast. GE warned that sales of power turbines, one of its fastest growing businesses, have started to slow.

GE stock dropped $3.45 to close at $33.75 after falling as low as $33.50, trimming more than $33 billion of the company's market value.

Investors say Chief Executive Officer Jeffrey R. Immelt needs to revive revenue to maintain the profit growth that marked the reign of his predecessor, Jack Welch.

"People want to see profit progress on a sustainable basis," said Brian James, an analyst at Loomis Sayles & Co. in Boston, which manages about $70 billion in assets and owns GE shares.

Termination fees from canceled turbine contracts and a rise in advertising revenue from the broadcast of the Winter Olympics on the company's NBC television network helped mitigate slumping sales at most of its industrial businesses.

The drop by GE, one of the five most widely held stocks of institutional investors, helped to drag down the Dow Jones industrial average and the Standard & Poor's 500 index.

In the past, investors rewarded the maker of aircraft engines and light bulbs, and parent of NBC and GE Capital for the predictability of its earnings gains.

Profit rose for 20 consecutive years under Welch, while the company's shares averaged an annual returned of 24 percent. The stock had dropped 6.2 percent since Immelt succeeded Welch in September.

GE said in February it was on track for sales growth of at least 3 percent for the quarter. Immelt reiterated today that profit this year would rise to $1.65 to $1.67 a share. The stock earned $1.38 a share in 2001.

It's the first drop in quarterly net income since the fourth quarter of 1994, when GE had losses from its sale of money-management firm Kidder, Peabody Group Inc.

In the recent quarter, GE took a $1 billion writedown for how it accounts for goodwill from acquisitions. Goodwill is the amount over the fair value that an acquirer paid for a company and is carried on its books as an asset. Earnings excluding the change were $3.5 billion, or 35 cents per share, matching the average analyst estimate.

The company said it made $2.3 billion in purchases during the quarter, the first time it detailed how much it spent on acquisitions.

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