General Electric Co. said Friday that fourth-quarter profit rose at all units but GE Industrial, which was hurt by poor performance in the plastics business.
The conglomerate, whose operations range from jet engines to commercial lending, said it may put the plastics unit up for sale and that it had overstated past earnings dating back to 2001 by a total of $343 million as a result of flawed accounting for interest rate swaps.
For months, investors have been wondering when GE would move to divest its plastics business.
Fourth-quarter net income totaled $6.58 billion, or 64 cents per share, compared with $3.16 billion, or 30 cents per share, a year earlier. Earnings were in line with the forecasts of analysts polled by Reuters Estimates.
GE, the world’s second-largest company by market capitalization after Exxon Mobil, said revenue rose 11 percent to $44.62 billion.
Profit at the industrial unit, which in addition to plastics makes products including light bulbs and appliances, fell 12 percent to $673 million; revenue slipped 5 percent to $8.04 billion.
“We’re seeing exactly why the company made a decision to divest the plastic unit, because the industrial performance is just not good,” said Peter Smith, analyst at Morningstar. “That just serves as evidence for why the company has been so active in the (mergers and acquisitions) market in the first couple weeks of the year.”
In the past two weeks, Fairfield, Connecticut-based GE has disclosed plans for $14.83 billion worth of acquisitions, including some businesses of Abbott Laboratories Inc., the aerospace business of Britain’s Smiths Group Plc, and Houston-based oil and gas fields equipment maker Vetco Gray.
“When you see me do $15 billion in two weeks, some of you may say, ’Is he crazy?”’ Jeff Immelt, GE chairman and chief executive, said on a conference call with analysts. “But this is all part of a five-year disciplined, diligent, long-term focus on the company.”
GE shares have risen 5.8 percent since the start of the fourth quarter, compared with a 7.4 percent rise in the Dow Jones industrial average, of which GE is a component.
‘Reviewing’ plastics
The plastics business has been a weak spot for GE for the past year, hurt by the high price of benzene, a key raw material.
“We are currently reviewing the potential disposition of our plastics business,” Immelt said.
Analysts have said the unit could fetch up to $10 billion, with potential buyers including private equity players or plastics rivals such as BASF AG, Dow Chemical Co. and Saudi Arabia’s Saudi Basic Industries Corp .
Immelt said GE would stick to its plan to buy back $5 billion to $7 billion of stock this year, but the repurchases will begin in earnest only after the plastics sale closes, which the company expects in the second half of the year.
GE said profit rose at its NBC Universal media business after a year of declines.
It said it would restate its results for 2001 through 2005, and for the first nine months of 2006, adjusting for its past accounting for interest-rate swaps, which the Securities and Exchange Commission determined did not meet certain requirements.
GE said it expects first-quarter earnings of 43 cents to 45 cents per share, which it said would reflect growth of 8 percent to 13 percent over year-earlier results.
GE said profit from continuing operations in its Infrastructure and Healthcare units should rise about 15 percent in the first quarter. It sees profit at its Commercial Finance and GE Money units rising 10 percent to 15 percent, and profit at NBC Universal flat to up 5 percent. The only unit in which it sees lower profit is Industrial, where it forecast a decline of 5 percent to 10 percent.
“That’s double-digit growth, and when you look at the S&P it’s only growing at about 6 percent,” said Thomas Leritz, portfolio manager at Argent Capital Management in Clayton, Missouri. Leritz follows GE but does not own GE shares.
GE said its year-earlier fourth-quarter earnings, after factoring out a $2.71 billion loss from discontinued operations, net of taxes, were 56 cents per share.