GE growth meets forecasts, but margins a worry

Fri Oct 21, 2011 1:26pm EDT
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By Scott Malone

(Reuters) - General Electric Co reported earnings that met Wall Street expectations, but its shares slipped 1.4 percent as investors worried about declining profit margins at its energy equipment division.

The decline -- to a rate of 13.7 percent from 16.5 percent a year earlier -- reflected weak demand for electric turbines holding down selling prices at the largest U.S. conglomerate's biggest industrial unit.

"Margins missed our forecast and were down year on year in the four big industrial businesses," said Jeffrey Sprague, managing partner at Vertical Research Partners. "There is little or no operating leverage in GE's portfolio due to low-priced equipment in backlog and R&D headwinds."

A lower-than-expected tax rate offset the weak margins, allowing the company to notch 18 percent profit growth.

GE, which also makes jet engines and railroad locomotives, said on Friday the third quarter marked a turning point for margins, which it said would improve in the fourth quarter.

"In 2012, we should have solid organic growth and expanding margins," Chief Executive Jeff Immelt told investors on a conference call. "We're lined up to have solid growth in aviation and energy."

The Fairfield, Connecticut-based company expects to increase profit by a double-digit percentage rate next year, despite worries that Europe's brewing debt crisis could hit global demand. GE noted that it generates just 18 percent of its industrial revenue on the continent.

That made it the second big U.S. manufacturer to weigh in on 2012 this week. United Technologies Corp on Wednesday said it looked for 2012 profit to grow about 10 percent, excluding the effects of the $16.5 billion acquisition of Goodrich Corp.   Continued...