GE’s 72% Post-Sherin Bounce Shifts Focus to Industrial Profit

(Bloomberg) -- General Electric Co.’s 72 percent stock surge since Chief Financial Officer Keith Sherin went on television to debunk fears of a GE Capital “time bomb” adds pressure on non-financial units to deliver profits this week.

GE now is being valued more in terms of its operations and earnings power “as opposed to Armageddon or worst-possible scenarios,” said Mark Demos, an analyst in Minneapolis for Fifth-Third Asset Management, whose parent Fifth Third Bancorp held 8 million shares as of Dec. 31. “People are still expecting Energy Infrastructure to grow in 2009.”

First-quarter earnings per share may have fallen by more than half as the recession and credit crunch hurt profit at the GE Capital, health-care and media divisions, according to analysts’ estimates ahead of the April 17 report. GE last month sank to $5.73 in intraday trading, the lowest since 1991, recovering only after Sherin took to the company-owned CNBC network on March 5.

Sherin, 50 and CFO since 1998, helped assuage investors’ concerns and followed up with a six-hour meeting on March 19 to provide the fullest look yet at GE Capital’s holdings and risks ranging from overdue consumer credit-card accounts to plunging vales for commercial real estate. He told them GE Capital will at least break even this year under the Federal Reserve’s worst- case scenario and isn’t likely to need more outside capital.

“The stock is, you could argue, being completely driven by the worries of GE Capital along with the financial sector,” said Deane Dray, a multiple-industry analyst at FBR Capital Markets in New York who doesn’t currently rate the stock. “This will be the first opportunity that investors will get to recalibrate where the industrial side of GE is, and how it has been operating in this very tough environment. It’s not hard to imagine the news is going to be fairly difficult for them.”

Profit Forecast

Profit from continuing operations at Fairfield, Connecticut- based GE declined to 21 cents a share from 44 cents in the year- earlier period, based on the average estimate from 13 analysts in a Bloomberg poll. The results will be the first since GE stopped giving per-share earnings guidance in December.

Multiple milestones fell during the quarter: Chief Executive Officer Jeffrey Immelt and GE’s board cut the century- old dividend for the first time since 1938 to preserve cash, and ratings companies knocked down the top-AAA rating for the first time in decades. The dividend cut is effective with the third- quarter payment.

Even with the jump since Sherin’s appearance, GE shares have lost two-thirds of their value in 12 months, more than drops of 37 percent in the Standard & Poor’s 500 stock index and 58 percent in the S&P 500 Financials index. GE declined 62 cents to $11.51 yesterday in New York Stock Exchange trading.

Executives declined to comment before the earnings statement, spokesman Russell Wilkerson said.

GE Capital

GE Capital accounted for 38 percent of the parent company’s $182.5 billion in revenue and 43 percent of its $18.1 billion profit from continuing operations in 2008. Sherin told investors March 19 the unit would post a profit in the first quarter and at least break even for the full year. Under two of three economic scenarios outlined for the unit last month, tax credits would provide at least $1.4 billion of the unit’s annual profit this year.

Nigel Coe of Deutsche Bank AG in New York is among analysts who are forecasting a pretax loss for GE Capital, which reports net income, along with “single-digit” profit increases at the Energy Infrastructure segment. He rates the stock a “hold.”

GE Energy Infrastructure, the world’s largest power-plant equipment and service provider, is having a “very strong” quarter, Sherin said March 19. GE Energy continued to post orders in the quarter, including a $1 billion order for gas turbines from companies in Saudi Arabia.