GE Revenue Falls Short on Weakness in Europe, GE Capital

General Electric (NYSE:GE) reported higher fourth-quarter profit on Friday, but fell short of Wall Street’s expectations on revenue, sending its shares down 2.5 percent in pre-market trading.

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Revenue fell 8 percent in the last quarter of 2011 to $37.97 billion, from $41.23 billion a year earlier, when including the sale of GE’s majority stake in NBC Universal. Factoring out the effects of the sale, revenue would have been up 4 percent.

Net income rose 0.6 percent to $3.93 billion, or 37 cents a share, compared to $3.90 billion a year ago. Excluding some costs, earnings from operations were 39 cents a share, topping average estimates by one cent.

Its operating earnings per share rose 11 percent to 39 cents, partly the result of fewer outstanding shares than the year-earlier quarter, as the company bought back shares.

The conglomerate expects 2012 to be a volatile year as Europe’s financial crisis takes its toll. In response, GE will build up its emerging-market presence while restructuring its European operations to reflect market conditions.

About 21 percent of sales came from Europe in 2010, the most recent year for which data was available. GE will pare down operations in the region in areas like healthcare and lighting, which tempered positive items related to tax audit resolutions in the last quarter.

“We expect continued volatility in 2012 and have prepared for it by investing in new products and technology, expanding our growth-market footprint and taking important steps to strengthen risk management,” said CEO Jeff Immelt, in a statement.

Conversely, quarterly profit was helped by strong orders for jet engines and a favorable tax rate. Despite less than favorable conditions in Europe, GE said it’s on track for double-digit earnings growth in 2012 and an increase in the dividend payout to shareholders.

Revenue in GE’s industrial businesses — ranging from jet engines and power generators to medical-imaging equipment and windmills — rose 10 percent to $26.8 billion.

Earnings in energy infrastructure, GE’s largest industrial division, were little changed while revenue rose 19 percent, helped by acquisitions and shipments of equipment. Industrial operating activities generated a total of $12.1 billion in 2011, beating most forecasts.

The company’s revenue was held back by a 9 percent decline at its GE Capital unit, where revenue fell to $10.7 billion while profit climbed 58 percent to $1.62 billion. Immelt is simplifying the unit while seeking to lessen the portion of the company’s total earnings coming from the financial division — the major reason behind the decline.

Before the financial crisis hit, GE Capital had grown well beyond its traditional business of financing sales of the company’s industrial equipment into home mortgages in Britain and consumer finance in Japan.

But GE was forced during the credit crunch to cut its dividend for the first time since the Great Depression, and began the lengthy process of trimming the finance business.

GE is a year ahead of its goal for shrinking assets in the division, and today announced a new goal to reduce net investment to a range of $425 billion to $440 billion.

Despite efforts to decrease the finance division’s importance in the company, and its effect on revenue, a new probe into possible fraud at the company’s former sub-prime mortgage arm, WMC Mortgage Corp., could result in a costly settlement.

The FBI and Justice Department are asking whether WMC used falsified paperwork, overstated income, or used any other tactics to push through questionable loans.

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To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

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