General Electric shocked Wall St. this morning by reporting a huge drop in earnings. This was the first time GE reported a drop in quartely profit since 2003. CEO Jeffrey Immelt had recently said that earnings were "in the bag" for 2008. A quote from Bloomberg:
"General Electric's miss came without warning as it was forced to reduce the value of some securities in the last two weeks of March as capital markets seized, Immelt said. That also prevented GE from selling some finance assets. GE put its U.S. credit card business and Japanese consumer finance units up for sale last year. The health-care unit also trailed expectations.
Profit from continuing operations dropped to $4.36 billion, or 44 cents a share, from $4.93 billion, or 48 cents, a year ago. Revenue rose 8 percent to $42.2 billion.
The stock dropped in early U.S. trading to as low as $32.81 from yesterday's New York Stock Exchange close of $36.75. The shares had fallen less than 1 percent this year compared with a 7.3 percent decline in the Standard & Poor's 500 index.
``This is one of the biggest misses that GE's had in quite some time,'' said Nicholas Heymann, an analyst with Sterne Agee & Leach Inc. in an interview today. ``The pressure is on like it's never been on before for all senior management at GE.''
Should we be surprised? Ben Bernanke told everyone this week that we have just gone through the biggest financial crisis in 50 years. People in the financial markets were "shocked" by the news saying that "GE never misses". In a normal market I would be shocked if they missed as well. THESE ARE NOT NORMAL TIMES!
Everyone on Wall St. thinks that the Fed can "save the day" by cutting rates and "bailing out" Bear Stearns. People need to realize that you can't start the debt party again by flushing the financial system with liquidity. Bailing out Bear Stearns does not fix the problem!
Most Americans are in financial distress right now and there is no doubt that the economy is going to suffer because of this. Wages are flat and the consumer is buckling under the pressure of higher gas prices, ridiculous mortgage payments, and inflation that's increasing the costs of all consumer goods.
Everyone needs to put the Fed's moves into perspective. All the Fed did was try to make more money available for people to borrow. The problem is the American consumer has no desire to borrow more money because they are tapped out. The Fed CANNOT make people borrow this money and as a result the economy will suffer.
When you have a once in a generation financial crisis you should expect the unexpected. The credit crunch destroyed GE this quarter and GE "never misses".
Expect the stock market to drop today as everyone begins to realize that the credit crunch is going to take its toll on corporate earnings this quarter. This news will also rattle the confidence of Wall St. going forward into future quarters.
General Electric shocked the street and Wall St. does not like to be surprised.