GE Earnings: Industrial Bellwethers Are Now Getting Hit

Forget the financial sector, forget the rise in import prices. Wall Street’s problems are now stretching to industrial bellwethers like General Electric (GE). For the first time in 5 years, GE reported its first quarterly drop in profit. (See transcript.) Their Financial division was hit the hardest as the Bear Stearns (BSC) debacle forced GE to write down its assets at very low values, resulting in a 42% increase in loss provisions.

Frontier Airlines (FRNT) also became the fourth airline to file for bankruptcy this month! The other 3 were Aloha, ATA and Skybus. Although Frontier credited their bankruptcy to “an unexpected attempt by its principal credit card processor to substantially increase a holdback of customer receipts,” rising fuel prices have played a big role in the failure of these 4 airlines. The problems are not unique to just US airlines. Oasis, HK’s discount airline was also forced to shut down yesterday. Late last year, all business carrier Maxjet filed for bankruptcy.

This proves that those economists who say core prices is the only thing that matters are wrong because prices INCLUDING food and energy is what is crippling the global economy.

Yesterday, the Wall Street Journal reported that prices are increasing everywhere:

Kimberly-Clark Corp., maker of household goods, began raising prices in February between 4% and 7% for some paper products, including Huggies diapers, Cottonelle bath tissue and Viva paper towels. Hershey Foods Corp. raised the selling price of its chocolate bars 13% in February after boosting prices between 4% and 5% in April 2007. Hanesbrands Inc., which owns the Champion and Hanes apparel lines, has warned that sustained high cotton prices could filter through to retail prices.

The Dollar’s slide is far from over. On Monday we have US retail sales and consumer spending will probably contract for another month. I am still calling for the EUR/USD to hit 1.60.

Comments

[Lilguy]

Kathy--Despite its inclusion in the DJ Industrials, GE is truly the poster child for conglomerates. Its earnings fell short because of shortfalls in its large (40% of revenues) financial business, not in manufacturing. The key reason the stock dropped today is that the CEO said things were OK as recently as two weeks ago, so the downside surprise was really a surprise to WS analysts. (I don't think it was a surprise to serious investors who research the stocks they buy.)

[bowlmar]

Maybe the market will reflect true forward P/E? In the case of homebuilders, the tax break will allow them to fudge earnings of course, but Uncle Sammy can't give money to the entire SP00 - perhaps the Dow though....

[James Cullen]

I think this is a case of the tail wagging the dog. GE was hit because it isn't just an industrial bellwether, but because it has the financial exposure. The numbers on the industrial side looked very good.

[AJ,WashingtonDC]

Missed estimates??? Aren't analysts supposed to review and revise estimates based on the current market environment? It appears that they are still living in a pipe dream. More power to GE - they will be able to buyback their shares 12% cheaper today. I can see why Immelt chose not to pre-warn. Why bother?

[who]

another CEO say their are ok but only to fall!

I guess it is time to short any stock that has some financial biz that has not take a dive lately!

[goatfarmer]

Trading volume was a whopping 366 million shares. That's a 10 year record and five times the previous record. I wonder why?

[goatfarmer]

The yield is a ten year record. The previous high was in February 2003, when the stock was making the second of a double bottom. Check out bigcharts.com. Use the interactive chart option. Select Yield in the 'lower indicator' option and you can see the yield over the last 10 years. Pretty nifty.

[sf94127]

GE will come back; this was a buying opportunity, people selling at low prices because of perceived loss in GE credibility.

The financials report next week and I predict the numbers will show we're either near, at, or even past the bottom for that sector. At least that will be the buzz.