GE earnings down, but better than expected

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NEW YORK (CNNMoney.com) -- General Electric Co. reported sharply lower second-quarter earnings Friday that still beat Wall Street expectations, even as its revenue fell more sharply than forecasts.

Shares of GE (GE, Fortune 500), a component of the Dow Jones industrial average, were down about 5% in early trading.

The company earned $2.9 billion, or 26 cents a share, in the quarter, down 47% from the $5.4 billion, or 54 cents a share it earned in the year-earlier period. Analysts surveyed by earnings tracker Thomson Reuters had forecast earnings of 23 cents a share in the period.

While earnings topped forecasts, overall revenue at the company fell 17% to $39.1 billion from $46.8 billion a year earlier. Analysts had expected revenue to drop to $42.2 billion.

The drops in revenue and earnings were widespread across GE, with its capital finance unit reporting the largest decline -- a 29% drop in revenue and an 80% plunge in earnings.

Most of the company's other units reported double-digit percentage declines in both revenue and earnings. Only its energy infrastructure unit reported a gain in earnings, up 13%, on revenue that was essentially flat.

"In a global economic environment that continues to remain challenging, GE delivered solid second-quarter business results," said GE Chairman and CEO Jeff Immelt in the earnings statement. "We continue to position GE to win in a reset economy."

GE Capital's woes: The recession has been a drag on much of GE's range of businesses, which are often seen as a bellweather for the overall global economy.

Consumers have cut spending on big ticket items such as appliances, while businesses trimmed their own capital spending. A drop in advertising revenue across the media industry has hurt results at NBC Universal.

But GE Capital has been most severely hurt by the problems that have dogged U.S. credit and financial markets for the last nine months, causing it to turn to the government for help.

While GE Capital did not receive help from the Treasury's Troubled Asset Relief Program, or TARP, which was used to bail out banks and automakers, it was one of the largest users of an Federal Deposit Insurance Corp. program to guarantee its debt. It used those guarantees on more than $43 billion of the debt it issued.

Even with that help, problems at GE Capital caused the company to lose its vaunted AAA corporate debt rating in March, and to cut its dividend to preserve capital.

Still the finance unit is on track to be profitable this year, the company said in its statement, as it has substantially increased its capital ratios, reduced leverage, increased reserves, accelerated long-term debt funding and lowered commercial paper balances.

GE Capital lost money on its real estate loans, although its other lines of business posted a profit.

The unit raised its reserves to $6.6 billion from $5.7 billion in the first quarter to cover anticipated increases in lending losses. But the unit should be able to break even or post a modest profit even in the worst-case economic scenario. "In a difficult environment, we are ahead of schedule on our plan to create a more focused financial services company," said Immelt.

GE Chief Financial Officer Keith Sherin said it was premature to say if GE Capital could see any benefits from current problems at business lender CIT Group (CIT, Fortune 500), which could be forced into bankruptcy after its request for additional federal help was rejected earlier this week.

GE Capital has reported a growth in both business and consumer customers compared to a year ago, even as many other financial firms are having to pull back on lending.

Company officials said they were pleased with the results at GE Capital, given the environment in the financial sector. They said they remain committed to keeping the business part of GE and will fight one proposal from the Obama administration that could conceivably force the company to separate its financial operations from its non-financial units.