GE shares up ahead of results

Analysts watching to see if conglomerate can withstand the problems of its financial services unit.

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By Catherine Clifford, staff writer

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NEW YORK ( -- Shares of General Electric finished higher Thursday as investors awaited the conglomerate's fourth-quarter earnings report - and analysts wondered how the company will maintain both its century-old dividend and perfect credit rating in the wake of problems at its financial services unit.

GE stock closed up 45 cents, or 3.4%, to $13.48.

Fairfield, Conn.-based GE (GE, Fortune 500) - whose products vary from jet engines to refrigerators to "The Tonight Show with Jay Leno" - was scheduled to post its results before Friday's stock market open. GE is a component of the Dow Jones industrial average, and is considered a market bellwether.

In mid-December, GE confirmed a 50 to 52 cents-per-share earnings outlook for the quarter, excluding one-time charges.

Including a $1 billion to $1.4 billion restructuring charge, GE said it expects earnings between 36 and 42 cents a share. In the fourth quarter of 2007, the company reported earnings from continuing operations of 68 cents per share.

According to a consensus estimate from Thomson Reuters, analysts were expecting the company to post earnings per share of 37 cents, including the restructuring charge.

While analyst estimates typically exclude one-time charges from their estimates of earnings per share, because the company announced the charge specifically, analysts were largely factoring in this charge to the estimate.

General Electric was expected to post sales of $50.5 billion in its fiscal fourth quarter, a 4% increase, according to the Thomson Reuters consensus.

The company's financial services arm, GE Capital, has been hit hard by the tightening of the credit markets. In particular, GE Capital - which offers insurance coverage, credit cards, and commercial and personal loans - has suffered losses due to the collapse of U.S. housing markets.

Still, GE expects its financial services division to earn $5 billion in 2009, according to statements by the company last month. According to a written statement released Dec. 2, executives were vowing to stand behind the financial services arm.

"GE Capital is an invaluable part of GE's portfolio, and we are fully committed to financial services," said GE Vice Chairman and Chief Financial Officer Keith Sherin. He also said the company was "committed to being a Triple-A company."

Even as the finance division suffered during the credit freeze that followed Lehman Brothers' collapse, GE announced in early December that it would pay an annual dividend of $1.24 in 2009.

The company has paid a dividend to its shareholders annually since 1899, according to a statement from GE.

Analysts wonder how GE will be able to maintain its triple-A credit rating - which makes borrowing easier and cheaper, but which also necessitates a certain level of cash on the books - and at the same time continue to pay out a dividend to its shareholders.

Goldman Sachs analyst Terry Darling, in a research note issued Tuesday, said he believes "GE shares are already discounting substantial bad news, reflected in its bond trading (as if the AAA credit rating will be cut) and its options pricing implying a 50% dividend cut in 2010."

Christopher Glynn, an executive director at Oppenheimer, wrote in a research note released Thursday that a disappointing fourth-quarter result "would continue to stoke concerns over tension between the credit rating and dividend sustainability."

For all of 2008, analysts expect to see earnings per share of $1.79, with sales of $186.9 billion, according to Thomson Reuters.

On Dec. 16, Chairman and CEO Jeff Immelt warned that 2009 would be a tough year and, going forward, the company would not be issuing earnings per share guidance for each quarter. To top of page

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