GE Earnings Could Be the Last Straw

Why would a company recruit Warren Buffett to invest $3 billion dollars? Well, just about every company in existence would like to have the vote of confidence that Buffett's dollars represent. That $3 billion count, then, allowed GE to turn to the open market and find enough demand for another $12 billion of needed capital.

Now answer me this... Why would a company raise $12 billion, a week and a half before its earnings report? Why would that same company schedule its report for a Friday, ahead of a long weekend? Now, I haven't paid close attention, but I believe this might not be abnormal for GE; however, it is irregular for any corporate earnings report to reach the wire on a Friday. Companies that report news on Friday afternoons, for instance, are typically trying to bury it. Also please forgive me for not writing this article when the idea first hit me, but such is Mango.

Anyway, there seems a good chance General Electric will have bad news to report today. GE recently reduced its full year earnings guidance, and its Q3 consensus estimate figure has come down nine cents over the past three months. That's a lot! The consensus estimate for Q3 now stands at $0.45, according to Thomson FN and Yahoo. You'll recall that the company made its number last quarter, but missed for the first time in memorable history in March. CEO Jeff Immelt came under heavy criticism because he had made a positive statement just weeks before that report. You'll recall that even Jack Welch, the iconic ex-chief of General Electric, tore Immelt to shreds that day on CNBC.

"The weight of the world sits on the back of General Electric's EPS report on Friday."

All signs point toward a bad report today, and considering what happened Thursday, should we call that "the last straw?" If, however, GE were to miraculously do less horribly than expected, it might give cause for rally. Thus, the weight of the world sits on the back of General Electric's EPS report today. I'm sorry to say, my feeling is this will be the straw that broke the camel's back. I hope not though.

Emergency Closure is Possible

Believe it or not, an emergency closure of the stock exchange is possible today, depending on just how bad the selling gets, if it gets going again. With the weekend ahead, and a long one at that, the government might decide it's a good time to let cool heads take a breath and possibly prevail as a result. The stock exchange is open on Columbus Day nonetheless, but even that seems in doubt now. Closing a stock exchange is considered taboo, even counterproductive. However, a lot of other things that were also not supposed to happen in a capitalistic democracy have occurred. Welcome to bizarro world, where down is up and up is nothing.

Disclosure: none

Comments

[Dr A J:]

GE ,a triple A rated company,an excellent dividend,with history to match,in all the right fields for growth ,very low PE ratio,if the current economic woes eventually wane,this stock will prove to have been a great buy at these levels.

2008 Oct 10 09:13 AM

[kurt walter:]

Why does GE need to pay St. Warren a 10 per cent yield for $3B? Makes no sense to me. If GE is so very strong couldn't it just flood $3B in preferred stock with a yield of 7 or 8 per cent? Or is GE a house of cards, too?

2008 Oct 10 10:49 AM

[Urbane Gori...:]

"but such is Mango" ????????

2008 Oct 10 10:57 AM

[BerkeleyBob:]

Reported earnings per share are in line with reduced estimates. No small investor is going to get Buffet terms, but at present price level, I was willing to add to my long term position in GE. In 18 to 24 months, I expect to have a smile on my face. Will you?

2008 Oct 10 02:32 PM

[strategyleader:]

Setting and Meeting realistic expectations and adapting to change are two of the reasons that GE has been able to prosper over its 127 years. Unfortunately, Immelt created very unrealistic expectations and couldn't meet them, but the current crisis appears to have changed this. GE's new expectations, though challenging, are more realistic and Immelt and his team are adapting to the new reality. If this continues and the focus is on reducing complexity and not just GOING BIG, GE and its stakeholders will win and the company will again become a "safehaven" and its stock price will grow.

Bill Rothschild, author of THE SECRET TO GE's SUCCESS, the only comprehensive and objective GE strategic history and now a global best seller.

2008 Oct 11 08:18 AM