Here’s Why General Electric Disappointed Investors
While company moves led to a 16 percent increase in income for General Electric (NYSE:GE) in this year’s first quarter, a major dropoff in the Power and Water division proved disappointing for investors. Major commitments in the wind and gas turbine sector have not paid off for GE, which noted its performance in Europe — expected to be poor — was even worse than predicted.
How bad was the company’s performance in the power industry? Overall, the company saw a 39 percent slip in earnings, caused by dismal performance in the company’s European operations and much slower growth in wind turbine sales. CEO Jeffrey Immelt mentioned that the company’s estimates — which would have to be downgraded hereafter — had included an expected decline from overseas industries.
The Cyprus debacle weighed heavily on GE, which had expected industrial revenue to grow between 2 and 6 percent. At this point, it seems likely to hit the low end of the scale. GE stock tumbled over 4 percent to $21.75 at the close of the week’s trading as investors expressed widespread disappointment at the numbers, despite positive signs in the company’s cash holdings.
On the positive front, GE met the $0.35 per share earnings estimate in its overall operation, largely in part to the company’s sale of an NBC Universal stake. The $16.7 billion generated from the sale will return to shareholders in its entirety via buybacks and dividends, according to a statement by the company. GE also mentioned it saw improvements ahead in industrial revenue, as it forecast the early part of the year to be its toughest challenge. Not everyone is convinced.
Above all, GE’s bet on the wind turbine business could prove to be a problem. Lower domestic gas prices have allowed most companies to continue to power their businesses with fossil fuels, leaving the clean energy industry waiting in the wings. Pressures from government agencies could change that trend in the coming years, but the Obama Administration has other priorities, to the chagrin of environmental activists. Until there is a bona fide shift toward wind power, GE’s commitment to that industry could prove costly.
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