10-QPeriod: Q2 FY2008

GENERAL ELECTRIC CO Quarterly Report for Q2 Ended Jun 30, 2008

Filed July 25, 2008For Securities:GE

Summary

General Electric (GE) reported mixed results for the second quarter of 2008. Consolidated net earnings decreased by 6% to $5.07 billion, or $0.51 per share, compared to the same period in 2007. This decline was primarily driven by a loss from discontinued operations, which increased from $0.23 billion to $0.32 billion. Despite the overall dip in net earnings, revenues saw a healthy 11% increase to $46.9 billion, bolstered by organic growth, a weaker U.S. dollar, and strategic acquisitions. The industrial businesses showed robust performance with a 15% increase in sales. However, the financial services segment, GE Capital Services (GECS), experienced an 11% revenue increase, but its segment profit declined due to higher provisions for losses on financing receivables and a general deterioration in credit conditions, particularly in the U.S. and UK. Management highlighted strategic initiatives including the potential spin-off of its Consumer & Industrial businesses and ongoing efforts to integrate recent acquisitions. The company also addressed a significant increase in financing receivables and provided details on its fair value measurement practices in light of market volatility.

Financial Highlights

23 data points
Beta

Revenue

$46.84B

70.4% Gross Margin

Net Income

$5.07B

10.8% Net Margin

EPS (Diluted)

$4.08

Cash & Equivalents

$19.00B

Free Cash Flow

$10.03B

Financial Statements
Beta
Revenue$46.84B
Cost of Revenue$13.88B
Gross Profit$32.95B
Operating Expenses$10.57B
Operating Income$9.74B
Net Income$5.07B
EPS (Basic)$4.08
EPS (Diluted)$4.08

Key Highlights

  • 1Consolidated net earnings declined 6% year-over-year to $5.07 billion ($0.51/share), impacted by increased losses from discontinued operations.
  • 2Total revenues increased by a strong 11% to $46.9 billion, driven by organic growth, favorable currency exchange rates, and acquisitions.
  • 3Industrial sales grew by 15%, demonstrating resilience in core manufacturing and product services segments.
  • 4Financial services (GECS) segment revenues increased 11%, but segment profit faced pressure from higher provisions for losses on financing receivables.
  • 5GE Money reported a 9% decrease in segment profit due to core declines and lower securitization income, alongside increasing delinquencies.
  • 6The company is exploring strategic options for its Consumer & Industrial businesses, including a potential spin-off.
  • 7Goodwill increased by $3.25 billion, primarily due to acquisitions such as Merrill Lynch Capital and Bank BPH.

Frequently Asked Questions

The primary reason for the decrease in net earnings is the increase in losses from discontinued operations, which rose from $0.23 billion in Q2 2007 to $0.32 billion in Q2 2008. While overall revenues grew, the impact of these discontinued businesses and some segment-specific pressures weighed on the bottom line.

The weakening U.S. dollar had a positive impact on GE's reported revenues, contributing to the 11% overall increase. Specifically, the weaker dollar boosted revenues across several segments, including Infrastructure, Commercial Finance, GE Money, Healthcare, NBC Universal, and Industrial Products, by providing a favorable currency translation effect.

The GECS segment faces risks related to increasing delinquency rates, particularly in its U.S. and UK portfolios. This led to higher provisions for losses on financing receivables and impacted segment profit. Deterioration in credit conditions and tighter credit standards are noted as ongoing concerns that could further affect results.

The filing mentions an ongoing SEC investigation concerning hedge accounting for derivatives and other accounting policies, including revenue recognition and cash flow presentations. GE has identified certain immaterial corrections to its Statement of Cash Flows related to intercompany transactions, which have been reflected in prior period information. While these did not affect financial position or results of operations, they constituted a significant deficiency in internal control over financial reporting. GE is cooperating with the SEC to resolve these matters.