General Electric Co posted its first quarterly profit increase in more than two years on Friday, but a sharper-than-expected drop in revenue spooked investors and its shares fell about 3 percent. A 4 percent slide in second-quarter revenue overshadowed an 8 percent rise in orders at the largest US conglomerate - the first time they have increased since 2008.
Investors noted that the world's biggest maker of jet engines and electric turbines notched a 16 percent profit increase, in part, through cost cutting that helped boost margins. "It's a nice beat on the bottom line on EPS, but the revenue number is still light," said Peter Sorrentino, senior vice president and portfolio manager at Huntington Asset Advisors in Cincinnati, which holds GE shares. "Cash flow was surprisingly stronger than I expected. That's a material improvement. It looks like it's still a cost-cutting story."
Chief Executive Jeff Immelt said he believed business conditions had improved in the quarter and reiterated GE's plans to increase earnings and raise its dividend next year. "GE's economic environment continues to improve," Immelt said. But he cautioned that "the economy is going to strengthen at different paces around the world."
GE shares fell 45 cents to $14.80 on the New York Stock Exchange. Shares of big US banks Bank of America Corp and Citigroup Inc also fell as concerns about lacklustre loan demand eclipsed stronger-than-expected earnings. GE said net earnings attributable to common shareholders rose to $3.03 billion in the second quarter, from $2.61 billion a year earlier.
The result, which worked out to 30 cents per share from continuing operations, topped Wall Street's forecast of 27 cents per share, according to Thomson Reuters I/B/E/S. Revenue eased 4.3 percent to $37.44 billion, lower than the $38.37 billion analysts had expected.
The company is in the process of pruning GE Capital - which Immelt says he allowed to grow too big - in order to focus on financing equipment purchases, commercial lending and investing in real estate. On Thursday GE reached a $1.9 billion deal to sell its controlling stake in Latin American bank BAC-Credomatic to Colombia's Grupo Aval. Given the progress in scaling back GE Capital, investors may be willing to look past lower-than-expected revenue, said Jack De Gan, chief investment officer at Harbour Advisory Corp in Portsmouth, New Hampshire, which holds GE shares.
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