AP
GE Reports 2Q Profit Up 9.6 Percent
Friday July 13, 4:31 pm ET
By Stephen Singer, AP Business Writer
[b]GE Reports 2Q Profit Jumps; Company Dumping Subprime Unit

HARTFORD, Conn. (AP) -- General Electric Co. is getting out of the sub prime mortgage business, the latest company to distance itself from an industry that seems to grow messier by the week.

The industrial, finance and media conglomerate, announcing second-quarter profits on Friday of $5.42 billion, said it took a $160 million hit on the sale, but that it has dumped $3.7 billion of its sub prime mortgage portfolio, easing the company out of a worsening environment.

GE's WMC Mortgage has $1.1 billion in mortgage loans remaining.

"In the first quarter we said we were committed to the business and we were," Keith Sherin, chief financial officer, told analysts in a conference call. "Based on the changes we saw, we made the decision to exit the business. I think it was a smart move."

Sub prime mortgage companies, which finance high-interest loans to borrowers with poor credit, have suffered since the housing began to crumble last year. Lehman Brothers Holdings Inc. has trimmed its exposure, JP Morgan Chase & Co. has increased reserves to offset sub prime mortgage losses and homebuilder KB Home has reduced its inventory and its exposure to sub prime loans.

Chairman and Chief Executive Jeff Immelt told analysts Friday that, in addition to an exit from the sub prime business, GE will jettison other financial services in the third quarter as well, though he would not be specific.

"What I'd say is that we've got good opportunities to review assets right now," he said. "We'll go through strategic review. You'll hear about it as we make our decisions."

Despite losses in its sub prime business, GE announced a 9.6 percent boost in overall profit. The company earned $5.42 billion, or 53 cents a share, in the three months ended June 30, up from $4.95 billion, or 48 cents a share, a year ago. GE's oil and gas, aviation, energy and commercial finance businesses had strong performances.

Analysts surveyed by Thomson Financial expected earnings per share of 52 cents. Estimates typically exclude one-time items.

Shares of GE, the parent of the NBC television network, rose 50 cents, or 1.3 percent, to $39.50 Friday.

Revenue rose 12 percent, to $42.3 billion from $37.7 billion a year earlier.

Profits were driven by GE's infrastructure business, up 23 percent, and commercial finance, up 18 percent, which Immelt called "unprecedented."

GE's infrastructure business includes energy systems, oil and gas technology and water processing.

"We look at infrastructure and commercial finance as long-term and both businesses are firing on all cylinders," said Matt Collins, an analyst at Edward Jones.

With funds due from an impending $12 billion sale of its plastics division to a Saudi firm, GE said Friday it would increase and accelerate its share repurchases. GE shares soared to a new 52-week high of $40.17 after the company said it has doubled this year's planned stock buyback to $14 billion.

Immelt said Friday that GE will hold off on large acquisitions, those of more than $2 billion, in favor of buying back stock.

"If there aren't favorable acquisitions out there, we'll turn it back to investors," Immelt said.

GE is flush with cash following the collapse this week of an $8.1 billion deal to buy Abbott Laboratories Inc.'s diagnostics business.

Immelt said that due to strong orders, GE is forecasting third-quarter earnings per share of between 54 cents and 56 cents, which would be 15 percent to 19 percent greater than profits reported during the same period last year.

Revenue at NBC was $3.6 billion, down from $3.8 billion in the second quarter of 2006, though profits rose slightly, to $904 million, from $882 million.

NBC's broadcast network tumbled from first to fourth over the past few years, but remains atop the ratings in morning and evening news and in late-night entertainment.

GE also took a hit in its health care business when the federal government cut reimbursements to non hospital imaging centers, which bought less equipment from GE. Profits in the health care business fell by nearly 9 percent, to $731 million during the quarter.

Eric Schoenstein, a principal at Jensen Investment Management, in Portland, Ore., discounted GE's results from the health care and the mortgage businesses.

"Those things are a natural phenomenon in an industrial conglomerate like GE," he said.

GE: http://www.ge.com