Boston: US-based technology, media and financial services firm General Electric Co.’s chief executive officer Jeffrey Immelt told shareholders in December that 10% growth in earnings to $2.42 (around Rs96.80) a share this year was “in the bag.” What a difference four months make.
Scrutiny time? General Electric chief executive Jeffrey Immelt.
GE reduced the forecast Immelt had repeated as recently as 13 March, citing turmoil in financial markets that slashed the value of investments and thwarted end-of-quarter dealmaking.
Fairfield, Connecticut-based GE had three days ago predicted that 2008 profit will increase no more than 5%, calling Immelt’s forecasting and strategy into question with investors.
“Immelt now has to be put in the penalty box,” said James Hardesty, president of investment adviser Hardesty Capital Management in Baltimore. Hardesty Capital manages $700 million, including GE shares.
Immelt, 52, took over GE from Jack Welch in September 2001 and has spent his tenure fine-tuning GE to limit risks. Now he must rebuild faith with investors who had stuck with him during the 19% stock-price decline under his tenure because of GE’s dividend yield of about 3.9% and consistent earnings.
GE forecast profit of $2.20 to $2.30 a share for 2008, down from the prior $2.42. Quarterly earnings dropped for the first time since 2003, with profit from continuing operations falling to $4.36 billion, or 44 cents a share, from $4.93 billion, or 48 cents, a year earlier. That trailed the 51 cent a share average of 15 analyst estimates in a Bloomberg poll.
Part of the earnings miss — 5 cents a share — can be blamed on the credit market seizure after the US Federal Reserve helped arrange the sale of imploding Bear Stearns Companies Inc., Immelt told analysts who asked him on a conference call why he had repeated the forecast on a 13 March webcast. “Two days after the webcast, the Bear Stearns situation took place,” Immelt said. “The last two weeks in March were a different world in financial services.”
Immelt bought about $5 million in GE shares in the open market in early March and benefited as shares rose 12% during the month, a gain that evaporated with the earnings report. He owns about 1.43 million GE shares. His total compensation, including the value of securities he can’t access yet, rose 9.7% last year to $19.6 million, according to GE’s annual proxy filing.
Frustration with GE’s forecasting performance bubbled over on the analyst call with Immelt. Analysts at Goldman Sachs Group Inc., Credit Suisse Group, Deutsche Bank AG and Citigroup Inc. cut their ratings on the shares.
The time has come for greater scrutiny of Immelt, said Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisors in Cincinnati.