April 11 (Bloomberg) -- General Electric Co. unexpectedly reported its first quarterly profit decline since 2003, sending U.S. and European stocks lower, as the credit market's seizure spread to the world's third-largest company by market value.
GE dropped as much as 12 percent in New York trading, the most since the October 1987 market crash. The decline wiped out as much as $42.2 billion in market capitalization, or more than the 2006 gross domestic product of Ecuador.
Chief Executive Officer Jeffrey Immelt cut the annual forecast he had once told investors was ``in the bag'' for 2008 and repeated as recently as March 13. GE now says capital markets seized up just days later, forcing it to cut the value of some securities in the last two weeks of the quarter and blocking some asset sales. The Federal Reserve's March 14 move to help rescue Bear Stearns Cos. created ``a different world,'' he said today.
``We hate disappointing investors,'' Immelt said on the GE- owned CNBC television network. ``It's not part of the company. It's not part of the culture. We take accountability for that.''
Profit from continuing operations dropped to $4.36 billion, or 44 cents a share, from $4.93 billion, or 48 cents, a year earlier. Revenue rose 8 percent to $42.2 billion, less than GE's prediction of about $44 billion. GE was expected to earn 51 cents a share, the average of 15 analyst estimates in a Bloomberg poll.
``You're shocked'' by such results, Benjamin Pace, chief investment officer of Deutsche Bank Private Wealth Management in New York, told Bloomberg Television.
Shares Plummet
The stock dropped $4.23, or 12 percent, to $32.52 at 11:25 a.m. in New York Stock Exchange composite trading. The shares had fallen less than 1 percent this year compared with a 7.3 percent decline in the Standard & Poor's 500 index.
On a conference call today, analysts demanded that Immelt explain why he told retail investors on a March 13 Webcast that Fairfield, Connecticut-based GE would likely meet its annual forecast of at least $2.42 a share.
``Two days after the Webcast, the Bear Stearns situation took place,'' Immelt said. ``The last two weeks in March were a different world in financial services.''
The market turmoil also prevented GE from selling some finance assets, Immelt said. GE put its U.S. credit card business and Japanese consumer finance units up for sale last year. The health-care unit also trailed expectations.
The U.S. may be near a recession because of a slump in housing prices and a tightening of credit markets. Some members of the Fed's rate-setting Open Market Committee said at their March 18 meeting that they saw the risk of a ``prolonged and severe downturn'' in the U.S. economy, the world's largest.
`Biggest Misses'
``This is one of the biggest misses that GE's had in quite some time,'' said Nicholas Heymann, an analyst with Sterne Agee & Leach Inc., in an interview today. ``The pressure is on like it's never been on before for all senior management at GE.''
GE missed its own forecasts for its commercial and consumer finance units. That cut per-share profit by 5 cents and resulted in a lowered full-year forecast of $2.20 to $2.30 a share, down from the previous forecast of at least $2.42. Immelt had told investors in December that $2.42 a share was ``in the bag.''
``The quarter was disappointing,'' James Hardesty, president of Hardesty Capital Management in Baltimore, told Bloomberg Television. ``It does reflect a rather sharp economic slowdown that seems to be occurring in the U.S.''
Finance units may have a profit decline of 5 percent to 10 percent this year and non-financial units will increase 10 percent to 15 percent. That makes total profit little-changed to up 5 percent, GE said in its statement.
Didn't See It Coming
``This is something that we clearly didn't see until the end of the quarter,'' Immelt said on the conference call. ``What we did is try to reflect on that, not make excuses and take appropriate actions. The company's fundamentals remain strong. We believe that the strategy and the fundamentals remain strong.''
GE Healthcare, the world's biggest maker of medical imaging equipment, had a profit decline of 17 percent, below the predicted 5 percent rise. GE hasn't shipped its OEC X-ray machines from a plant for 20 months as it works to comply with an FDA consent decree. That cost about 1 cent a share, Immelt said.
GE Infrastructure, the largest of the six main segments, has units that focus on oil and gas equipment, jet engines, locomotives, power-turbines, water-treatment and aircraft leasing. Its revenue climbed 23 percent, more than forecast, driving a 17 percent increase in earnings, which matched GE's prediction.
Downgrades
Analysts at Goldman Sachs Group Inc. and Credit Suisse Group both cut GE's rating to ``neutral'' today. Fourteen analysts recommend buying the stock, and six suggest holding it. None recommend selling. Before today's earnings announcement, 16 analysts rated the stock a ``buy'' and four rated it ``hold.''
``There's probably a very good buy in here,'' Joseph Keating, chief investment officer of First American Asset Management in Birmingham, Alabama, said in an interview with Bloomberg Television. His firm manages $3 billion, including GE shares. ``They have a worldwide franchise in industrial products and with the decline of the dollar, their products are competitive worldwide.''
The cost of protecting bonds of GE, the biggest U.S. corporate borrower, reached the highest in almost two weeks. Credit-default swaps on GE's General Electric Capital Corp. increased 10 basis points to 131 basis points, according to broker Phoenix Partners Group in New York. The contracts have about doubled this year as the credit-turmoil that started in the U.S. housing market led investors to flee everything from commercial paper to leveraged loans.
Investors and analysts asked Immelt to assure them that GE's ability to forecast, and strategy as a whole, remained intact and whether this surprise decline eroded GE's reputation as a safe investment.
``I understand your frustration,'' Immelt said. ``I'm not going to be defensive about it, this is a company that's delivered for a long time. The franchise of the company is very strong. And I feel the same about the strategy of the company.''
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