GE's Pretty Good Economy Is Actually Reaffirming Earnings Guidance (GE)

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General Electric (NYSE:GE), at its GE Security Analyst Meeting this morning, has signaled that it is averting an earnings warning.  The prior guidance remained.  GE showed its Q3 2007 outlook, although it is much the same it gave with its Q2 earnings presentation. 

Back then it showed projections of $0.54 to $0.56 EPS on total revenues of approximately $42 Billion, with net earnings of $5.5 to $5.7 Billion.  There appears to be no change to its Q3 reported earnings and total year guidance.  This new slide shows the same $0.54 to $0.56 EPS guidance, up 15% to 19%.  It is also offering $2.18 to $2.23 for Fiscal 2007.  We backed out the charges for restructuring and divested operations. 

As far as how this compares to estimates, these numbers are mostly in-line.  First Call has $0.55 EPS and $42.69 Billion in revenues.  As far as total fiscal 2007, First Call lists $2.21 as the EPS target and an implied $171.75 Billion revenues.

This should come as a relief at a time when investors are trimming risk and when companies are facing a rougher time.  After speaking with several investors and several counterparts out there, we all had a feeling that maybe GE’s infrastructure business might not be quite to offset some of that weakness tied to housing in its appliances and in financing out there.  If the overall economy isn’t going to deteriorate much further, that worry appears to be alleviated. 

If GE shares can hold this 1.3% gain at $40.70, this will be within a hair of its $40.82 highest close of the last 52-weeks. The intraday high this year is $40.98.  If this tone remains in individual unit presentations, then it would seem likely that analysts will reaffirm or maintain their ratings and that average $44.00 price target.

This morning CFO Keith Sherin appears to have cut off these fears atthe pass.  He did note that the company is watching the impact ofhousing, but countered that by noting the broad industrial economy isstill in good shape.  As a repricing of risk has taken place, GE is oneof the few remaining Triple-A rated companies by ratings agencies.Later on there is a signal that while the Global consumer is doingwell, tougher US consumer would drive expectations of higherdelinquencies and losses.  Restructuring actions in the third quarterare estimated at $1.7 to $1.9 Billion.

Perhaps the saving graceboils down to the global nature of the company.  It shows the GE Moneyunit with 30% of its earnings coming from high value US consumer,another 30% from Latin America, Asia, and Eastern Europe, and then 40%from developed markets of Europe, Australia, and New Zealand.

The projections for percentage of profits is as follows:

Unit……….% of Profit…Stronger business position (2008 outlook)

Infrastructure 37%…Great position in robust global market…"early innings"

Com’l Finance 20%…Leading global commercial finance

GE Money      13%…Great global position & record; reduced risk & improved strategic position

Healthcare    11%…Strong global position; OEC hipping in Q4-07; DRA still tough but better comps

NBCU            11%…Strong Cable & Film; network turnaround progressing

Industrial    8%….Plastics complete; building high-tech & brand position

If you wish to review the whole presentation summary in detail you can on their site here.

Jon C. Ogg
September 18, 2007