General Electric Co.'s second-quarter profit was sliced nearly in half, the company said Friday, as the recession drove down earnings at its finance unit and smothered demand for its wide-ranging industrial goods.
Although earnings beat Wall Street forecasts by a penny, GE's revenue fell $3 billion short of expectations, helping push down shares 6 percent in early afternoon trading. Quarterly sales fell across its divisions, from health care to broadcasting, suggesting that the recession is still sapping demand for goods and services.
That was bad news for the nation's economic health since GE's businesses touch nearly all facets of the economy and investors were hoping sales would show flashes of strength.
The Fairfield, Connecticut-based company is also retreating from a more optimistic outlook for its industrial businesses, which make everything from microwaves to wind turbines. It's now saying those divisions could break even rather than show a profit this year.
GE reported second-quarter net income of $2.6 billion, or 24 cents per share, after paying preferred dividends. That was down 49 percent from $5.1 billion, or 51 cents per share, a year earlier. Revenue fell 17 percent to $39.1 billion.
Analysts polled by Thomson Reuters expected GE to earn 23 cents per share on revenue of $42.16 billion.
The first half of 2009 has been a difficult one for GE, one of the world's largest companies. It cut its dividend sharply to preserve cash, lost its vaunted Triple-A credit rating, and saw its share price plummet on fears that things could get worse for its lending unit.
GE Capital, which lends money on everything from credit cards to commercial real estate, posted a modest profit of $590 million in the second quarter. But those results were 80 percent lower than a year earlier, further proof that GE Capital is struggling with losses on bad loans. GE boosted reserves for loan losses to $6.6 billion during the quarter.
Still, GE Capital "remains on track to be profitable for the full year," Jeff Immelt, GE's chief executive, said.
GE is in the process of shrinking GE Capital and scaling back its reliance on riskier debt like commercial paper. But its earnings show that the unit continues to face serious challenges. For example, GE's real estate unit, which owns office buildings and makes loans for commercial properties, posted a $237 million loss compared with $484 million in profits a year earlier.
"We are still very cautious about the real estate outlook," said Keith Sherin, GE's chief financial officer.
The company plans to give a detailed review of GE Capital later this month, the second time this year it will open its books as it tries to convince investors that there are no big losses lurking.
As GE Capital founders, the company has looked to its industrial divisions for stability. But those businesses, which make products like home appliances, train locomotives, diagnostic equipment for hospitals and jet engines, have also struggled during the recession.
GE said Friday that its industrial units should just break even this year. Previously, the company had said earnings could reach $5 billion.
"Clearly they have taken a bit of the wind out of the sails for industrial expectations," said Nicholas Heymann, an analyst with Sterne Agee.
Demand for new GE goods appears shaky. GE said its second-quarter industrial sales fell 7 percent to $26 billion, and its backlog of orders dipped. About 75 percent of industrial income this year is now expected to come from work servicing existing equipment. That's a possible sign that customers are choosing to hang on to existing GE equipment instead of replacing it.
The conglomerate's NBC Universal entertainment division saw profits fall 41 percent on weak television advertising.
(msnbc.com is a joint venture of Microsoft and NBC Universal, which is a GE company.)
There were some bright spots during the quarter. Profits rose in GE's energy unit that makes products like power plant turbines and gas pipeline equipment. GE is currently filling a $3 billion order from Iraq for gas turbines. Revenues also rose sharply in markets like China and India.
GE has already met its goal of raising $45 billion from debt sales this year and pre-funded a third of its planned debt issuance for next year. That's an indication that credit markets may be regaining some of their vigor.
The company has also been shrinking its size and cutting costs — it trimmed costs by $3 billion during the quarter.