Friday, April 11, 2008

GE Could Have Explained More

GE (GE) comes out and disappoints the market with lower than expected earnings. The market promptly punishes itself and drops the price by 10%. The major culprit is financial services. Everything else seems to be going rather well. Rather encouraging actually. Back orders are up and profits look nice. But financial services which has long been a mainstay in GE strategic asset mix has finally put a major bite on earnings expectations.

GE Chairman and CEO Jeff Immelt said. “Our primary shortfall was a decline in financial services earnings. We knew the first quarter was going to be challenging, but the extraordinary disruption in the capital markets in March affected our ability to complete asset sales and resulted in higher mark-to-market losses and impairments,"

When you look at the segment numbers Commercial Finance and GE Money profitability dropped approximately 20%. The entire world understands that sub prime has been a problem. For investors to suddenly wake up and say now it’s also at GE also is disingenuous.

For GE to stand up in this market and issue such an abbreviated discussion and explanation is an error in judgement. Basically Jeff Immelt is telling us we know the assets are shaky and we couldn’t finish the game of hot potato before the buzzer. That is not Six Sigma quality management.

The press release may have been regulatory compliant but has become investor toxic.