By Scott Malone
BOSTON (Reuters) - General Electric Co
The U.S. conglomerate expects fourth-quarter profit to be at the low end of its prior forecast and said it aims to pull back from riskier finance businesses, such as consumer mortgages and some equipment finance, and reduce its reliance on the troubled commercial-paper market.
Its shares climbed about 9 percent as investors warmed to the idea of restructuring GE Capital, even as GE officials warned they do not expect that business to return to growth until 2010.
The finance arm, with businesses ranging from investing in real estate to commercial lending, was largely responsible for GE's 12 percent profit drop so far this year.
"Obviously the macro environment remains very challenging," said Keith Sherin, GE's chief financial officer, in a briefing with investors on Tuesday. "We know that we have to reduce our cost structure in this environment."
The company expects to take $1 billion to $1.4 billion in fourth-quarter after-tax charges related to restructuring. It is considering unspecified job cuts at both GE Capital and across its industrial units, which make products ranging from jet engines to refrigerators.
"People are giving them the benefit of the doubt that they have their hands around the problem right now," said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, Ohio, which manages about $20 billion in assets and counts GE among its holdings.
He said more changes were likely at GE Capital, which the company has already started to restructure by merging its former commercial finance and consumer finance arms and unveiling plans to cut costs by $2 billion next year.
"We'll see more next year sure," Klein said. "This is not the end but certainly you have to take it in steps."
SEES Q4 NEAR BOTTOM OF FORECAST
The Fairfield, Connecticut-based company expects quarterly earnings of 50 cents to 52 cents per share, compared with its prior guidance of 50 cents to 65 cents per share. Wall Street analysts, on average, had looked for profit of about 51 cents per share, according to Reuters Estimates.
The world's largest maker of jet engines and electricity-producing jet turbines is preparing for a worsening economic environment.
Company officials said they are planning for U.S. unemployment to reach 8.5 percent by the end of 2009, up from 6.5 percent in October, and expect at least one U.S. airline to liquidate next year.
In the face of that, they reiterated the company's intention to pay a $1.24 per share annual dividend next year and maintain its triple-A credit rating.
GE Capital expects to earn about $5 billion next year, down from a targeted $8 billion this year, the company said. It expects the finance business to return to double-digit earnings growth in 2010.
"AFETY FIRST"
GE aims to lower the leverage ratio of its GE finance unit to six-to-one next year, from a seven-to-one target this year. To do that it is considering moving about $5 billion in capital into that business, with the funding coming from the $15 billion the company raised earlier this year in a stock offering, Sherin said.
"Safety first is really how we're thinking about the business," said Michael Neal, CEO of GE Capital. "We're in a very difficult credit cycle right now."
GE plans to reduce its outstanding commercial paper to $50 billion next year. That's down from $88 billion at the end of the third quarter.
GE shares rose $1.45 to $16.95 on the New York Stock Exchange. They are down 54 percent for the year, a steeper slide than the 37 percent fall of the Dow Jones industrial average <.DJI> and the 43 percent tumble of the Standard & Poor's 500 index <.SPX>.
(Reporting by Scott Malone, Editing by Maureen Bavdek, Dave Zimmerman, Derek Caney)
