General Electric posted a sharper-than-expected drop in revenue on slack demand for jet engines and other heavy equipment, casting doubts about the pace of the U.S. recovery.
The largest U.S. conglomerate's 5.1 percent decline in sales overshadowed better-than-expected profit and sent GE shares down 3 percent in premarket trading Friday as some investors took it as another sign that the economic recovery is faltering.
The better-than-expected profit reflected lower corporate expenses and a stronger performance at the company's GE Capital unit, which saw losses on loans decline and recorded more tax benefits than analysts had expected in the quarter.
Revenue came to $35.89 billion, below the $37.54 billion analysts had expected, according to Thomson Reuters I/B/E/S. The shortfall reflected faltering demand for energy equipment, jet engines and railroad locomotives.
"I'm a little concerned about the broader manufacturing sector, that this may be a bit of a harbinger," said Peter Sorrentino, portfolio manager at Huntington Asset Advisors in Cincinnati.
Investors will get a more detailed look into the sector's future next week when manufacturing heavyweights United Technologies, Caterpillar and Honeywell International report their results.
There have been a number of signs in recent weeks that the U.S. recovery is slowing. A Business Council survey released Thursday showed that just one in three U.S. CEOs believe their industries will improve over the next six months.
Riding the 'New Normal'
GE's overall order backlog held steady at $172 billion.
"In the new normal world, you can't expect to see much in backlog growth," Jack De Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire. "It would have been positive to see it growing. It didn't, and I'm thinking foreign exchange may have had something to do with that. Next quarter they'll probably get a tailwind in their backlog."
Chief Executive Jeff Immelt reported rising orders for both equipment and services — an indicator of future sales, the first time both have increased in two years.
"A renewed GE should grow earnings and dividends in 2011 and beyond," Immelt said in a statement.
In July, GE said it would raise its quarterly dividend by 20 percent to 12 cents per share, starting a process of restoring a payout that it slashed from 31 cents per share during the downturn.
The company expects earnings per share to rise sequentially through 2012, it said in company slides posted ahead of a conference call with analysts.
Profit from continuing operations — which factors out GE's pruning of its finance arm — came to $3.16 billion, or 29 cents a share, up 29 percent from $2.45 billion, or 22 cents a share, a year earlier. On that basis, GE beat Wall Street's earnings forecast by 2 cents per share.
Net income, including $1.1 billion in losses related to GE Capital portfolio restructuring, fell 18 percent.
The results marked GE's second consecutive quarter of earnings growth after a nine-quarter streak of declines.
The company said the decline in revenue in part reflected its efforts to trim back the capital business, which emerged as its Achilles' heel during the credit crisis and recession. The finance unit's revenue fell 3 percent in the quarter, while sales its GE's energy infrastructure unit fell 14 percent.
As of Thursday's close, GE shares have risen about 14 percent for the year, outpacing the 6 percent rise of the Dow Jones industrial average, of which it is a component.
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